Can GrafTech International Ltd. (GTI) keep going up?

If I told you I know of a stock that's up 223% in the last year, and I think going to go up significantly more, you'd probably call me crazy. It's not Apple (APPL) or Baidu.com (BIDU), it's a company that has built momentum with more than winning a high-school election by popularity.

GTIThe company I'm referring to is GrafTech International Ltd. (NYSE:GTI), they manufacture a range of graphite electrodes, products essential to the production of electric arc furnace (EAF) steel, and various other ferrous and non-ferrous metals. GrafTech's history goes back to supplying arc carbons to the City of Cleveland, Ohio in the early 1900’s, to allow the city to become the first in the world with electric powered street lamps. They are a world leader in graphite material science with more than 120 years of experience in the carbon and graphite industry. GrafTech's products are manufactured on four continents and sold in more than 80 countries around the world.

The 52 week chart for GTI is a beautiful rise to the top, all the way from $6 to $19 a share:
GTI CHART

No question, GrafTech has experienced some incredible growth in the last year and the Stockmasters think it's just the beginning. The reason why their stock has grown so much is their inept ability to beat earnings. Just look at their past year of earnings releases, they've beaten it every single time:

Earnings History Sep-06 Dec-06 Mar-07 Jun-07
EPS Est 0.14 0.16 0.15 0.24
EPS Actual 0.15 0.21 0.27 0.37
Difference 0.01 0.05 0.12 0.13
Surprise % 7.1% 31.2% 80.0% 54.2%

Now, take a look at their earnings estimates:

Earnings Est Current Qtr
Sep-07
Next Qtr
Dec-07
Current Year
Dec-07
Next Year
Dec-08
Avg. Estimate 0.27 0.30 1.21 1.41
No. of Analysts 3 3 3 3
Low Estimate 0.27 0.28 1.20 1.27
High Estimate 0.28 0.33 1.23 1.50
Year Ago EPS 0.15 0.21 0.57 1.21

GTI reported $.37 in June, and Analysts are only expecting $.30 in December! Think they will beat those estimates? You bet your ass they will. For December '08, Analysts are expecting $1.41 for the year. If they keep growing earnings at the current clip, they are going to make $1.75 to $2.00 without a problem.


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So bet the farm on GTI? No, we never recommend betting the farm on anything, diversification is the key. But we think the momentum GTI has right now should raise the share price to the $22.50 to $30 range if they can continue to beat earnings estimates.

GTI FUEL CELLAs a side note, check out their Fuel Cell products that are found in 85% of fuel cell vehicles worldwide. Big growth opportunities for the future. I really like the momentum on this stock and it's justified and not blasted or hyped up by the company being mentioned on CNBC every other minute. GrafTech International has become a valuable security by doing what companies should do - beat earnings, sell great products, grow the business, and stand strong on a solid governing management team. These guys have got it all and with a P/E of 13.9 with shares trading at $19, it's worth the risk/reward ratio of picking up shares while they are chasing a new 52-week high.

Eric CheshierArticle written by: Eric Cheshier
Article posted on: October 11th, 2007

Disclaimer: The Author does NOT own any of the securities mentioned in this publication.

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