This column is for investors willing to take more risk and potentially receive more reward.  The stocks mentioned in this column are not recommended to buy or sell.  They're brought to your attention so you can investigate them further to determine if they fit your risk profile.  Most of the stocks will have less than $1 billion of market capitalization, have more volatility than other stocks, and oftentimes no earnings.  And some will have tremendous stories.

March 4, 2010 - MTS Systems Corp. (MTSC-NASDAQ) supplies testing systems and industrial position sensors in North America, Europe, and Asia. It operates in two segments, Test and Sensors.

In addition, it offers products to manufacturers of commercial, military, and private aircraft and their suppliers for testing of aircraft and space vehicles, as well as sub-systems, components, and materials. Further, this division sells various accessories and spare parts, as well as provides services, including installation, calibration, maintenance, training, and consulting.

The Sensors group manufactures products utilizing magnetostriction technology for manufacturers of plastic injection molding machines, steel mills, fluid power, oil and gas, medical, wood product processing equipment, mobile equipment, and alternative energy. Its products are also used to measure fluid displacement, such as liquid levels for customers in the process industries.

MTS Systems sells through a direct sales force, independent sales representatives, and independent distributors, as well as through the Internet and catalog. The company was founded in 1966 and is headquartered in Eden Prairie, Minnesota.

Look for 2011 to a banner year for MTSC. Earnings should more than double, going from $1.14 in 2010 to $2.71 this year (fiscal year ends September 30). Next year, 3 analysts have a consensus estimate of $2.87. Quarterly results (finish in March) should show 62 cents a share, if the projections are correct, well above the 37 cents made last year in the second quarter. First quarter results were 86 cents, well above the 46 cents analysts expected.

Revenues climbed by 19% in the first quarter (ended in December). A combination of events explain the improvement: stronger backlog, more orders for the quarter and a strong short-cycle product mix. Backlog was up 15% to $247 million at the end of the first quarter, suggesting that current pick up in business will continue for a while.

While the short cycle products are selling well, there are several long-cycle custom projects in Test backlog. These may or may not develop fully from the Test mode. And they may or may not be part of revenues as originally planned, contributing to highly variable sales and profits results.

For a relatively small stock (Market Cap is $685 million), the dividend is rather generous. The board of directors is determined to reward shareholders. Recently it boosted the dividend by 33% to 80 cents a year, up from 60 cents. It had been at 60 cents for 3 years, after being hiked from 48 cents in 2007. The company has stated that it intends to return 25% of its earnings to stockholders over the long term. That increase in the payout comes after the new authorization to buy back up to $30 million of MTSC common stock. Should the repurchase happen, it will further boost earnings per share.

Investors noticed all the good news. The stock is up 30% in the last 3 months, ahead by 64% in the last year. The high for the stock in the last 52 weeks was $46.72, the low $25.50. Still, the P/E ratio is relatively realistic at 15.55 (on projected earnings).

Aggressive investors will like the momentum on this stock. The price chart from late last year until now looks like the vapor trail of an ascending rocket. The question is: can it keep going or is it already in orbit, expecting to stay in a relatively narrow range, the way it did between 2005 and late 2008? After that, it followed the market down, hitting its low in March of 2009. If it can deliver earnings as estimates suggest, keep buying back stock, and raising the dividend, odds are good this stock will find new heights.