ERIC BARDEN
PORTFOLIO MANAGER
TEXAS CAPITAL VALUE AND GROWTH FUND

COMPANY: Aldila Incorporated
SYMBOL: (Nasdaq: ALDA)
PRICE: $29.37 (as of 4 p.m. February 3)
52-WEEK RANGE: $14.11-30.20
MARKET CAPITALIZATION: $157.63 million

Eric Barden is a portfolio manager at the Texas Capital Value and Growth Fund with more than $84 million of assets under management. California based Aldila Incorporated designs and manufactures graphite golf shafts in America. It’s a small company, but as Mr. Barden explains to David Dalley of The New York Sun, it has big potential.

What does Aldila do?

They are the market leader in the production of graphite golf shafts. They sell the shafts on a wholesale basis to the equipment manufacturers, and also to golf specialty stores.

Why do you like the stock?

Well for one thing, it’s extraordinarily cheap. It’s trading at just 13 times earnings, with a five-year annual average growth rate in excess of 100%.Year over year in 2005, its earnings grew by roughly 100%. That’s matched by strong revenue growth, up 40% in the last 12 months.

Why has it experienced such strong growth?

My guess is that they picked up some more contracts with some of the major producers. Keep in mind that this is a pretty cyclical business. Essentially they sell what would be classed as ‘luxury goods.’ When times are tight, people won’t spend money to get their clubs reshafted. This cyclical consumption is especially noticeable in their core market, which is the high-end consumer. When you have a difficult stock market, for example in 2001 and 2002, business goes down. But right now, the top end is doing really well, so I think that that’s what’s driving the earnings. And that’s a situation we expect to persist into the long-term.

What is Aldila’s strategy going forward?

A lot of it will be to just continue producing a good quality product. Right now they’re one of the leading shaftmakers for tour players. As long as that’s the case you’ll see all of the weekend warriors following suit. They don’t have a monopoly, but they are a very strong market leader in a fairly specialized, niche market. My sense is that as long as the economy holds up, people will continue to put money into golf clubs. People will pay a lot of money to shave a few strokes off their game.

Why is now the right time to buy?

Right now this stock isn’t on the radar of many investors. Its P/E is 13. Now, given its earnings growth, it should have a P/E of at least 16. That implies at least 20% upside from where we are now, on top of any earnings growth. It also has a 2% dividend yield which is rare for such a small company. I’m comfortable predicting 50% earnings growth this year.

Where do you think the stock price is headed?

I wouldn’t be surprised if it were a $50 stock by the end of the year.

What are the risks?

The risk is in the economy. If there was a big crash in the housing market, or in the stock market, or anywhere that affects the high-end consumer and puts them under stress, then this company would be in trouble. The risk isn’t in terms of competition, and the demand will remain strong as long as the overall economic environment for the high-income consumer holds up.