Three Stocks with Strong Price Momentum and Room to Run

	Paul Tracy Street Authority.com
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One of the oldest sayings on Wall Street is -- "buy low, sell high." Unfortunately, following that seemingly simple piece of advice is a lot harder than you might think.

Of course, every investor dreams of buying a beaten-down stock and riding it to new heights. And there's absolutely nothing wrong with buying solid companies on weakness. However, it's important to remember that a stock's price is ultimately a reflection of its fundamentals and business performance.

In short, stocks become cheap for a reason -- beaten-up stocks usually get that way due to a fundamental deterioration in the underlying business. And if a stock is rallying strongly, then there's probably a reason for that too -- business is getting better and profits are growing.

Of course, this doesn't mean it's a good idea to simply buy the five best-performing stocks in the S&P 500 and hold on. Some top performers are overvalued on a fundamental basis and are vulnerable to any whiff of bad news. In addition, even fundamentally weak companies can enjoy brief rallies from time to time. Nonetheless, we think there's a great deal of value in reviewing a list of stocks that are performing particularly well, as it can help point us toward some real gems.

Below, my staff and I will review three companies that have seen dramatic rallies in recent quarters. All of our favorites are fast-growing companies in exciting markets. More importantly, however, we believe that all three are still at the early stages of a multi-year bull market run. As such, investors should still be able to earn solid profits in these companies despite their recent share price gains.

Please note that all prices are as of the close of trading on Friday, October 22nd.

PROVIDE COMMERCE (PRVD, $24.12)

Business Overview
Provide is an e-commerce company that sells perishable items such as flowers and meat directly to consumers via the Internet. The company does not buy from wholesalers, nor does it utilize distributors. Instead, it sources all items directly from a network of suppliers.

Right now, the company's primary business is the sale of flowers and plants via its Proflowers.com website. While flowers are by far the most important product sold on Proflowers, the company actually has about 200 different items available for sale. Proflowers has been a solid grower since the firm launched the website in 1998. In fact, Provide's database of customers has grown from less than 70,000 in mid-1999 to over 3 million by the middle of 2004. Not surprisingly, flower sales still account for over 90% of Provide's annual revenues.

The company has also been rapidly expanding into new markets over the past few years. Late last year, for example, Provide launched two new services -- Uptown Prime and Cherry Moon Farms, sellers of high-quality meats and fresh fruits, respectively. Uptown Prime focuses on the high-end meat market, selling specialty cuts like Kobe steaks. Ditto for Cherry Moon, as the site sells freshly handpicked organic fruits.

Growth Drivers
My staff and I see two main growth drivers for Provide: expansion into new product lines and continued growth for the core flower and specialty foods business.

Provide's basic technology and shipping infrastructure is highly flexible. The company launched Uptown Prime and Cherry Moon directly on its Proflowers website, using the same Internet sales platform and ordering page. Neither of these new services required the firm to reinvent the wheel -- Provide still ships all of its products via the same fulfillment centers as Proflowers, and the company still sources all of its products directly from suppliers.

That flexibility leaves room for Provide to continually enter new markets and add new products. In fact, its Uptown unit has already expanded its range to include seafood after less than a year of operation. Even better, management's practice of dropping the least profitable items each year and replacing them with new products encourages profitable expansion into new markets.

My staff and I also believe there's plenty of growth in the company's existing core businesses. The U.S. flower market sees roughly $19 billion in annual sales, and according to the Bureau of Economic Analysis that market is growing at a little less than +5% percent annually. As such, selling flowers is a mature business with relatively slow growth. However, the online flower sales market for is an entirely different story altogether. According to industry estimates only about 3.7% of all flower sales are made online, leaving plenty of room for this budding industry to expand. And expand it has -- online flower sales are growing roughly 10X faster than the industry at large.

The market for specialty foods is also on a roll. As my staff and I recently pointed out in our special report on "Up-and-Coming Bellwethers," Americans are becoming more health-conscious and are increasingly turning to organic foods. Sales of organic fruits and vegetables alone have soared from less than $500 million annually in 1990 to more than $2 billion by 2000. Provide's specialty meats and organic fruits fit well with this recent growth trend.

Competitive Advantages
The main competitive advantage Provide offers is its cheap and fast supply chain. Typically, retailers do not buy goods directly from suppliers. Instead, suppliers ship their goods to an importer or distributor. The distributor, in turn, will often add yet another middleman to the process by shipping goods along to a wholesaler. These wholesalers then deal directly with retailers. So, under the typical supply chain arrangement, several middlemen are involved in the typical retail supply chain and each middleman adds cost and time to the process.

Provide doesn't operate that way. Instead, the company has developed a network of hundreds of different suppliers from which it buys all of the goods it sells. When a customer places an order on the company's website, Provide buys those goods directly from the supplier. As a result, the firm doesn't hold any inventory -- goods are sourced only after they're ordered. Even better, this highly efficient, streamlined supply chain process involves no middlemen.

The result is cheaper prices for consumers and much faster delivery. This is particularly important in the perishable goods business. Flowers, for example, have a very limited shelf life -- once picked most flowers will only remain fresh for about a week or two. Therefore, delivering flowers quickly is of the essence; Provide's streamlined supply chain delivers flowers from growers to consumers an average of seven days faster than traditional florists.

Even better, the company is also able to pass its lower supply chain costs along to the consumer in the form of lower prices. The firm's online prices are generally cheaper than at traditional florists or online competitors like FTD and 1-800-Flowers. In addition, Provide's low-cost, no inventory approach also leads to higher profit margins -- the company's operating margin stands at 8.2%, more than double 1-800-Flower's 3.5% margin.

Valuation and Outlook
Analysts expect PRVD to post long-term earnings growth of somewhere in the neighborhood of +25% per year. And that growth estimate could prove conservative given the strong recent growth PRVD has seen in its organic food market.

Based on projected 2005 earnings of $1.03, PRVD is trading at just 24 times earnings, a discount to its projected long-term growth rate. Although the stock has nearly doubled since the beginning of the year, PRVD continues to trade with a P/E-to-growth (PEG) ratio of less than 1. Given its current growth rates, in five years' time the company should earn well north of $3 per share. Based on the firm's current P/E, that suggests an eventual move above $70 over the next few years.

MINE SAFETY APPLIANCES (MSA, $35.42)

Business Overview
Mine Safety Appliances manufactures a range of health and safety equipment for the commercial, emergency services, military and consumer markets. The firm's major product lines include respiratory equipment, air quality monitoring devices and thermal imaging cameras used by firefighters.

MSA is a 90-year old company. In the early years, the firm focused mainly on selling gear to mining companies. However, more recently the majority of MSA's sales have been to the military and other government customers. The company has been very aggressive in targeting this customer base. For example, the firm was among the first to come out with an advanced helmet for soldiers that met new Pentagon specifications. And when the standards for firefighting equipment changed in 2002 to include protection against biological and chemical weapons, MSA was the first company to produce gear that met those new specifications.

On the consumer end, MSA sells its products through a variety of home improvement chains. Products for consumers include items such as first aid kits and protective masks.

Growth Drivers
In recent years, the main growth driver for MSA has been increased military and homeland security spending. Sales to both the federal and individual state governments should continue to power strong growth in coming years.

MSA's largest single market is to firefighters and other so-called first-responder units such as the police and ambulance services. In the wake of September 11th, spending on first responders skyrocketed. After all, firefighters and police are normally the first to arrive at the scene of a major disaster or terror attack. It's absolutely vital that these personnel are well equipped with the latest safety equipment.

The federal government recently earmarked $2.4 billion in funding for various individual states -- most of it destined for first responder units. To date only about 14% of those funds have been dispensed, so there's plenty of new spending in the pipeline. As the primary supplier of safety and protective gear in the U.S., MSA stands to one of the biggest beneficiaries of this new funding.

Then, of course, there's the military. The big sellers in this arena are the company's Advanced Combat Helmets (ACH) and a line of gas masks used to protect soldiers against chemical attacks. The company recently reported a strong backlog of orders for the combat helmet. In fact, in order to meet demand for the ACH product, the firm will need to drastically ramp up production capacity at the two plants where the helmets are manufactured.

MSA reported earnings growth of nearly +50% in the most recent quarter, smartly above analyst expectations. Best of all, this growth is coming primarily from homeland security and military markets. Going forward, this type of government spending should remain strong even if the overall economy weakens.

Competitive Advantages
MSA has a wide competitive moat. Very few companies are allowed to sell products to the U.S. military or to firefighters and policemen. Products like advanced helmets and gas masks have to meet stringent quality regulations imposed by the government in order to be certified for use. When it comes to these types of highly specialized and heavily regulated products, it's extremely difficult for new entrants to break into the field.

What's more, time after time MSA has proven its ability to be the first company to break into new homeland security and military markets. As my staff and I mentioned above, the firm was the first to meet new regulations for fire protection equipment. For several months, in fact, MSA was the only approved supplier of such gear to U.S. firefighting units. With a long history of supplying protective gear to military and government markets, MSA is well positioned to garner lucrative new contracts in the years ahead.

Valuation and Outlook
For the past two years, MSA has consistently delivered consensus-beating earnings numbers. This year, analyst growth estimates have gradually but consistently been ticking higher.

Consensus estimates now place the company's long-term growth rate at around +17% annually. Meanwhile, based on 2005 earnings estimates, the company trades at a P/E a little under 16. That gives the firm a PEG ratio of less than 1. On that basis, MSA remains cheap even though the stock has rallied over +89% in the past year.

Another point to note is the rising institutional interest in the stock. Two years ago, institutions owned less than 20% of the company; right now, that ratio stands closer to 40%. Apparently, MSA's consistent growth is starting to capture the interest of fund managers. But, with institutions still holding less than half the stock, there's still plenty of room for more institutional involvement here.

Based on the firm's projected growth estimates, after five years MSA could easily deliver earnings of $4.25 per share. Using the firm's current P/E multiple of 16, that implies the stock could be worth around $70 per share.

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HARMON INTERNATIONAL INDUSTRIES (HAR, $105.76)

Business Overview
Harman International makes sound systems primarily under the following brand names -- Harman/Kardon, JBL, Infinity and Mark Levinson. Most of Harman's sales are to the automotive industry, where its sound systems can be found installed in Daimler Chrysler, BMW, Audi, Porsche, Toyota and Mitsubishi automobiles, among others.

Of course, Harman offers a great deal more than just simple radios. Over the last few years, the company has expanded into more interactive audio/video systems, PS navigation systems and car entertainment systems. Harman's newer systems integrate radio, CD, navigation, climate control, entertainment and diagnostic controls into a single onboard operating system. These integrated units, dubbed "infotainment systems," have become an increasingly common feature in luxury automobiles.

Outside the car market, Harman sells more advanced systems designed for the professional market. For example, both the Grand Ole Opry in Nashville and the Kennedy Center in Washington, D.C. use Harman speaker systems. And on a smaller scale, the company also supplies speaker systems used in the home personal computer (PC) market.

Harman's smaller business involves direct sales of sound systems and speakers to consumers. The company doesn't have its own line of retail locations, but rather sells through major retailers such as Best Buy and Circuit City.

Growth Drivers
Harman's primary growth driver will continue to be the automotive market -- particularly the sale of newer, more advanced systems in high-end automobiles. Sales to automotive suppliers already account for roughly 70% of the firm's total revenues, up from 60% just two years ago. My staff and I are particularly excited about the company's growing sales to luxury carmakers, as these units carry particularly high profit margins.

Luxury car manufacturers are always looking for ways to differentiate their products from the mass-market automakers. After all, many carmakers traditionally considered mass market are now installing such options as leather seats, as well as features like advanced traction control, in their autos. In an effort to appeal to luxury consumers, one point of differentiation has been the quality of the car's onboard electronics and sound system.

Harman has established itself as a technology leader in this area. In fact, some potential competitors like Siemens have had trouble getting the bugs out of their systems. As a result, in many cases HAR is the only available supplier of these products. The company's infotainment systems are factory installed in many Audis, Mercedes Benz, Porsche and Lexus automobiles.

HAR has won a host of contracts recently to supply these automakers with infotainment systems, and most of these contracts extend three to five years into the future. As such, they should help HAR to deliver a stable, reliable earnings stream for years to come. Most recently, for example, the company announced a huge contract for advanced systems from DaimlerChrysler for its line of cars and Jeep SUVs beginning with the 2007 model year. The firm's total order backlog now stands at over $1 billion -- close to 40% of the company's annual revenues.

These new contract wins are powering growth in two important ways. First, increased sales to automobile customers have kept revenues growing at about a +25% annualized clip over the past few quarters. But perhaps more importantly, earnings are growing far faster than sales because the company is selling a greater number of its most expensive products -- the infotainment systems. These systems carry by far the highest margins of anything HAR sells.

Competitive Advantages
The firm's competitive advantage is simple: Harmon has the first-mover advantage in advanced sound and electronics systems. To date, no other company really has the same quality of products available for sale to the automotive market, giving HAR a very significant lead in this profitable niche market.

Although other manufacturers might try to enter this space, the good news is that much of HAR's earnings are already locked-in because the company has signed long-term supply contracts with the best potential customers like Mercedes. And it would likely take quite some time for competitors to catch up to HAR. After all, even a major player like Siemens had a great deal of trouble entering this market.

Valuation and Outlook
Most analysts expect HAR to deliver long-term earnings growth of about +25% per year. And management seems to be comfortable with this estimate, thanks in large part to its solid long-term contracts with several major automakers. Meanwhile, based on 2005 earnings, HAR trades with a P/E of around 30, giving the stock a PEG of just a touch above 1.0. That type of valuation seems downright reasonable for a company that's growing as fast as Harman. In fact, in three year's time the stock should deliver earnings close to $7 per share. Applying a multiple of 25 times earnings, that suggests a price close to $175, roughly +70% above current levels.

Paul Tracy will be available to take your questions until Monday, November 15. Please use the form below to submit your questions.