Tale of Two Stocks

I will likely buy my 20th MFI stock this week. The two stocks that I am considering are:

(1) MTEX - a company that makes nutritional supplements etc (think GNC).

(2) PLAY - the supplier of Ipod parts recently left at the altar by Apple. Some people might think this is Playboy, but that is PLA.

Here are some key points regarding the two companies.

MTEX

• Market Cap: 360.1m
• Price: $13.41
• 52 Week Range: $8.17 to $20.25
• TTM EPS: $1.08
• Pre Tax Earning Yield: 15%
• Pre Tax Return on Capital: +100%
• 2.4% dividend
• Cash per Share: $2.09

1st Quarter Highlights:

• 16% Y o Y Growth in Sales
• Lowered Operating Expenses by 1.7 points
• Debt Free Balance Sheet

PLAY

• Market Cap: $267.16m
• Price: $10.82
• 52 Week Range: $10.40 to $33.19
• TTM EPS: $1.84
• Pre Tax Earning Yield: 63%
• Pre Tax Return on Capital: +100%
• no dividend
• Cash per Share: $7.77

1st Quarter Highlights:

• Revenue of $72.3m.
• EPS of 40 cents.
• However with loss of Ipod business, 2nd quarter expects to drop to $30m to $40m
• EPS is forecast to drop to (0.03) to 0.05.

So the real question is does one expect PLAY to find other places to sell their wares? They have a strong balance sheet. They seem to have some innovative products. Bad news seems to be priced in the stock. They are certainly in the midst of what is popular right now. But to be frank, the MFI approach assumes that the past is a reasoanble predictor of the future. And while it is "possible" for PLAY to get back to 2005 profitability and they are not necessarily a "bad" buy, I don't think they fit the MFI mold.

Hmmm, I am talking myself out of PLAY. I just can not believe they will be able to find anything as good as Apple. MTEX actually looks pretty good. It is always a positive sign to me that a company steadily increases their dividend. PLAY probably has more upside, but they could be stuck for a while if they don't find a few new partners.