8 Stocks With Enviable Profitability

A WRENCH HANDLE with interchangeable sockets was novel when the Snap-On Wrench Company introduced it in 1920. Today no decent workbench or garage is without one. The company gained rapid market share over the past 80 years by taking its wares directly to customers like car mechanics, and over the past half-century has done so using stocked, walk-in vans operated by franchisees.

Socket wrenches last a long time, though, and their creator, now called Snap-On (SNA), isn't nearly the only company that sells hand tools or the one with the best price. A couple of years ago it seemed the business had stalled. Sales were flat from 2001 to 2005. In 2006 the company turned just six cents of each sales dollar into operating profit. The median for companies in the S&P 500 index (Snap-On among them) is 10 cents.

Management set about trimming costs and increasing efficiency. Plants and distribution centers were consolidated, manufacturing processes were improved and supply and delivery systems were tweaked. Today Kenosha, Wis.-based Snap-On seems a changed company. Sales over the past seven quarters have increased 5% to 7%. Operating profit is nearing 13 cents on the dollar. Analysts say the company is headed for 15 cents.

All this has rekindled the stock. It's now up 117% in five years, more than triple the S&P 500's gain. The margin improvement helped earn Snap-On a spot on a recent search for just that, and for rising earnings estimates. Wall Street now figures the company will earn $4.12 a share this year, 11 cents more than it was anticipating just 90 days ago. Assuming Snap-On meets this forecast -- it has beaten analysts' past four quarterly ones by an average of 13% -- it will mark a year-over-year profit improvement of 28%. That's not bad for a wrench maker selling to car mechanics amid the first downturn in miles driven in three decades.

Of course, today Snap-On sells far more than wrenches. It has a full universe of hand and power tools, diagnostic equipment, storage carts and so on. It also sells to more than car mechanics. Demand has been particularly strong of late among aerospace companies, the military, drillers and miners. Foreign customers make up nearly half of sales; Snap-On has been adding capacity in China and Eastern Europe. And besides, offsetting the U.S. driving downturn is the worst year for new-car sales in more than 15 years. Older cars need more trips to the shop.

It doesn't seem too late to get in on Snap-On's growth spurt. Shares go for just 14 times this year's earnings forecast, a whisker below the S&P 500 median. Earnings are expected to increase a further 13% next year. The company is only modestly indebted and is seen generating free cash of nearly $550 million, more than its debt, over this year and next. Free cash flow has topped earnings in recent years, a hallmark of companies with clean books. All that cash makes the dividend look secure. Shares yield 2.1%.

Have a look at seven other companies that turned up on my profitability screen if you like. Run it yourself anytime using SmartMoney's stock screener and the full list of criteria.

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