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No. of Recommendations: 6
(I posted these notes on the HG board for Marine Products; thought you might like to read them...)

Marine Products is forging an Earnings Power Staircase, for those of you who read my book "It's Earnings That Count" (McGraw-Hill, 2004).

Each year for the three years ending Dec. 2004, MPX has generated year-over-year gains in defensive and enterprising profits. Defensive profits is free cash flow; enterprising profits is net return on capital. The two are not the same, and strength in both is required for a company to qualify as a blue chip.

The company has generated defensive and enterprising profits back to at least 1999, another impressive feat.

Last, the latest three-year return on greenest dollar (RGD) is 117%. Net operating profit after-tax grew by $13.8 million during 2002-2004 while capital grew by $11.8 million, my spreadsheet shows. RGD is a test of how well management employs the capital (debt, equity, operating leases, LIFO reserves, etc.) at its disposal. The higher this return figure, the better. In their heyday, Microsoft and Paychex both earned RGD'S of 50%-75% a year.

If anyone knows how to copy charts into this discussion board, let me know and I will share the MPX's Earnings Power Chart with eveyone.

To learn more about this dual income statement approach, check out my website

Thanks again to TomG for interviewing me for Hidden Gems.


Marine Products (cont.)

These rising return on capital figures are also impressive:

2000 - 12%
2001 - 16%
2002 - 47%
2003 - 58%
2004 - 66%

My posts on this board are not a buy recommendation, as I am just starting my due diligence. But so far, MPX displays the hallmarks of a conservative growth stock.

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