Suburban Propane (SPH): Still going strong

Back in December 2005, I picked Suburban Propane Partners Lp (NYSE: SPH), which sells propane and fuel oil. I liked the fact that the stock was in the mid-$20's and that its propane business n particular enjoyed captive customers due to the difficulty of switching services. I also felt it was under-priced at the time.

The stock price doubled between then and last month; although since then it has lost some ground. But in my thinking this only provides investors to buy SPH at a slight discount. In fact, I hear that the stock slipped down recently because a large hedge fund ran into some trouble and needed to liquidate many of its winners....SPH being one of them.

2007 has been going well so far for SPH. Despite warm winter temperatures in the first quarter, particularly in December, which saw limited revenue growth, operating income was up 43% over the first quarter of 2006. The second quarter saw revenues grow more, and net income was up about 25% over the second quarter of 2006. These strong margins are due in large part to some savvy cost cutting -- SPH cut off some less profitable customers, reduced fleet and labor costs, and reorganized its HVAC division -- and these cuts should continue to deliver profits going forward. I also like the fact that SPH has returned these profits to investors with an excellent dividend yield of 6.5%.

On a less shiny note: There isn't much room for growth, except by acquisition, though, so it may be difficult for SPH to dramatically increase revenues.

Type of Stock: A propane company with steady profits and a very nice dividend.

Price Target: SPH is trading in the low $40s after nearly hitting $50 in July. With the dividend providing protection against a downside, I think this is a solid buy below $45, but if you see it drop below $40, I think it's a no brainer.

Note: I own shares of SPH.

Hilary Kramer is a financial editor and money coach for AOL and an authority on investing. Visit her at www.hilarykramer.com