A. O. Smith Corporation (NYSE: AOS) manufactures water heating equipment and electric motors. The Water Products segment makes a line of gas and electric water heaters, commercial water heating equipment, copper-tube boilers, and water systems tanks. The Electrical Products segment produces hermetic and fractional horsepower motors. The company sells its water heater products to plumbing wholesalers and retail outlets. Its motors go to original equipment manufacturers and distributors. The firm operates primarily in the U.S., Canada, Mexico and China. Sears Holdings (NASDAQ: SHLD) is a major retail client.

The company pleased investors last week, when it reported Q2 EPS of $1.03 and revenues of $622.2 million. Analysts had been looking for 78 cents and $606.3 million. The CEO attributed success to "our ability to operate our plants efficiently, focus on cost containment, and recover increased raw material costs from our customers." Management also guided FY08 EPS to $2.95-$3.10, versus consensus of $2.89.

The stock popped on the news and is now forming a bullish "pennant" consolidation pattern. Prices frequently exit pennants moving in the same direction they were traveling on entry. In this case, that would be to the upside.

Brokers recommend the stock with one "strong buy", one "buy" and three "holds". The AOS P/E ratio (11.81), PEG ratio (1.22), Price to Sales ratio (0.48), Price to Book ratio (1.35), Price to Cash Flow ratio (6.18), Price to Free Cash Flow ratio (13.02) and EPS Growth rate (33.77%) compare favorably with industry, sector and S&P 500 averages. The stock is one of those used to calculate the S&P 600 SmallCap Index. Over the past 52 weeks, it has traded between $29.25 and $52.48. A stop-loss of $32.90 looks good here.

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com. He does not hold a position in either of the stocks discussed above.