By Jim R Regan
The industrials sector of the stock market is where I am most involved nowadays. While the big names like General Electric (NYSE: GE) and Caterpillar (NYSE: CAT) may not jump out at you as big gainers, plenty of these rock-solid companies have been hit unfairly, and I see value. As an added bonus, industrials companies often act as a hedge to thriving markets like agriculture. We've got some killer stock picks for this week, lets see what we can dig up.
Industrial Machinery - Harsco (NYSE: HSC)I may be a sucker for fallen stocks, but Harsco's drop off their highs was especially unwarranted. You want proof? How about beating fourth-quarter earnings estimates of $0.70 with $0.74 and increasing 2008 guidance. How about topping revenue expectations by $75 million. Harsco manufactures in mill services and gas technologies.. they are the top dogs in a boring market, and I'm loving it. A whopping 70% of their sales are international, and even in a slowing world economy, an unusually high rate of recurring service revenues gives me confidence in Harsco's ability to maintain earnings momentum. Don't be concerned with rising costs and problems in home construction, Harsco's end markets such as global steel production and non-residential construction are expected to remain firm in 2008.
Despite slight challenges in Mill Services in the most recent quarter, Harsco outperformed with strong gains in Rail & Mineral Technologies. I see nothing but upside in growth for 2008, and with a key acquisition possibility, Harsco could completely out-do themselves. Access Services has a nice hedge against a possible falling non-residential construction since about 25% of their industrial maintenance business is recurring. Very protected from a slow-down, and undervalued at $55 versus a target of $75... I put a purchase price at under $54 for Harsco. Conglomerates - 3M (NYSE: MMM)3M is big-time diversified, offering everything from scotch tape to respirator devices. After raising 2008 guidance, multiple firms have issued BUY upgrades from HOLD in January. Investment research firm Stern Agee believes that 10% EPS growth in 2008 appears done deal under virtually any scenario." This kind up build-in security net from a further economic downturn is just what we want. 3M right now is the kind of excellent company that investors are a bit antsy about buying back into after a fall-off from previous highs of $95 to $75. I affirm that there is no problem here; get in now before the big movers start to buy the shares back up.
We love international growth in a bloated US market, and 3M has 65% growth overseas... 30% of that in high-growth emerging markets. They are the "no magic required" investment we want in 08'. None of their business segments should have ANY problem creating the level of growth built into current valuations, and Reuters has downside estimated at 5% compared to a 15%-17% upside. There certainly aren't any bells and whistles about 3M, but their global footprint in emerging markets positions them well to benefit from steady business ventures with relatively low risk. With a target price at $95, and an appropriate purchase price at $77-$79, I feel that this conglomerate juggernaut is a winner.
Industrial Engineering - Jacobs Engineering Group (NYSE: JEC)In their most recent earnings release (January 21, 2008), management at Jacobs Engineering Group hinted toward strength in key end markets, such as energy, which leads me to believe they will be at least matching their 15% year-over-year growth initiative. Also in this call, they beat earnings estimates by a few cents and increased 2008 guidance, citing a favorable pricing environment among other factors. This positive outlook "includes variance in the U.S. Economy." But what I like most about Jacobs is their visibility. Operating margins fared better than expected in a challenging environment, and backlogs increased to nearly $15 billion, yes billion. Granted, this stellar growth may be more of a challenge for the year, but I feel that they can at least produce strong gains in the second quarter. If guidance remains positive at this point, the sky is the limit.
JEC is undervalued in my opinion, and their continued performance hasn't missed a beat. When the market turns, Jacobs should be ready to ride the bull. On top of a strong free cash flow position, they have virtually no debt. They operate in four sectors: oil & gas, chemicals, national government and infrastructure, each with plenty of potential. Energy seems to be their most anticipated gainer in 2008, suggesting that clients offer a "commitment to spending" amid low volatility incurred by oil prices. Add this in with a steady pipeline of products, and we see oil & gas well leveraged in the market. I target Jacobs at a one-year $96 tag, and feel an appropriate purchase price should be from $70-$73.
Ag. Machinery and Construction - Manitowoc (NYSE: MTW)I have been a fan of Manitowoc cranes for the past few quarters, now we finally have the market underpricing this company like we want. Manitowoc competes with Terex (NYSE: TEX), an excellent company by all marks with high growth potential. However, I feel that most analysts miss on the fact that Terex's cranes are low quality... workers want Manitowoc! They have already capitalized on international demand, and smashed earnings estimates of 68 cents with 74 cents. Earnings reports also yielded that continuing operations performance rose 119% year-over-year and sales of cranes jumped 56%. Manitowoc's management confirmed that despite worries about the housing construction market, MTW's operations were indeed minimally exposed to the pain.
There is no reason for this trend to slow in 2008, and trading under $40 is just not fair. We all know that the agriculture market has been surging as of late. Manitowoc has a hand in producing related equipment, and is also a major player in the emerging Asian markets... where non-residential construction is constant. Management believes they can maintain strong growth by focusing on new product introductions, market share increases (achieved by cross-selling through its expanded distribution network), and improved penetration in Asia. Prior to the sell-off in late-2007/early-2008, the crane industry was seen as "in the middle of a multi-year up-cycle" in demand and production. I expect this trend to continue now that shares of Manitowoc have unprecedentedly been crushed off their highs. I can see them hitting $54 a share, with an appropriate purchase price just under $39 for optimal value.
There are plenty of places to look for growth in 2008 out of the industrials sector. While I did not find any defense & aerospace companies particularly appetizing, I am bullish on the industry and would suggest looks at United Technologies (NYSE: UTX), Northrop Grumman (NYSE: NOC) and Lockheed Martin (NYSE: LMT). Agriculture giants like Deere & Co. (NYSE: DE) may make viable investments as well, but you must be wary of the premium you often need to shell out for shares of stock. Please feel free to email me any stock questions you may have. -The Net Fool
The industrials sector of the stock market is where I am most involved nowadays. While the big names like General Electric (NYSE: GE) and Caterpillar (NYSE: CAT) may not jump out at you as big gainers, plenty of these rock-solid companies have been hit unfairly, and I see value. As an added bonus, industrials companies often act as a hedge to thriving markets like agriculture. We've got some killer stock picks for this week, lets see what we can dig up.
Industrial Machinery - Harsco (NYSE: HSC)I may be a sucker for fallen stocks, but Harsco's drop off their highs was especially unwarranted. You want proof? How about beating fourth-quarter earnings estimates of $0.70 with $0.74 and increasing 2008 guidance. How about topping revenue expectations by $75 million. Harsco manufactures in mill services and gas technologies.. they are the top dogs in a boring market, and I'm loving it. A whopping 70% of their sales are international, and even in a slowing world economy, an unusually high rate of recurring service revenues gives me confidence in Harsco's ability to maintain earnings momentum. Don't be concerned with rising costs and problems in home construction, Harsco's end markets such as global steel production and non-residential construction are expected to remain firm in 2008.
Despite slight challenges in Mill Services in the most recent quarter, Harsco outperformed with strong gains in Rail & Mineral Technologies. I see nothing but upside in growth for 2008, and with a key acquisition possibility, Harsco could completely out-do themselves. Access Services has a nice hedge against a possible falling non-residential construction since about 25% of their industrial maintenance business is recurring. Very protected from a slow-down, and undervalued at $55 versus a target of $75... I put a purchase price at under $54 for Harsco. Conglomerates - 3M (NYSE: MMM)3M is big-time diversified, offering everything from scotch tape to respirator devices. After raising 2008 guidance, multiple firms have issued BUY upgrades from HOLD in January. Investment research firm Stern Agee believes that 10% EPS growth in 2008 appears done deal under virtually any scenario." This kind up build-in security net from a further economic downturn is just what we want. 3M right now is the kind of excellent company that investors are a bit antsy about buying back into after a fall-off from previous highs of $95 to $75. I affirm that there is no problem here; get in now before the big movers start to buy the shares back up.
We love international growth in a bloated US market, and 3M has 65% growth overseas... 30% of that in high-growth emerging markets. They are the "no magic required" investment we want in 08'. None of their business segments should have ANY problem creating the level of growth built into current valuations, and Reuters has downside estimated at 5% compared to a 15%-17% upside. There certainly aren't any bells and whistles about 3M, but their global footprint in emerging markets positions them well to benefit from steady business ventures with relatively low risk. With a target price at $95, and an appropriate purchase price at $77-$79, I feel that this conglomerate juggernaut is a winner.
Industrial Engineering - Jacobs Engineering Group (NYSE: JEC)In their most recent earnings release (January 21, 2008), management at Jacobs Engineering Group hinted toward strength in key end markets, such as energy, which leads me to believe they will be at least matching their 15% year-over-year growth initiative. Also in this call, they beat earnings estimates by a few cents and increased 2008 guidance, citing a favorable pricing environment among other factors. This positive outlook "includes variance in the U.S. Economy." But what I like most about Jacobs is their visibility. Operating margins fared better than expected in a challenging environment, and backlogs increased to nearly $15 billion, yes billion. Granted, this stellar growth may be more of a challenge for the year, but I feel that they can at least produce strong gains in the second quarter. If guidance remains positive at this point, the sky is the limit.
JEC is undervalued in my opinion, and their continued performance hasn't missed a beat. When the market turns, Jacobs should be ready to ride the bull. On top of a strong free cash flow position, they have virtually no debt. They operate in four sectors: oil & gas, chemicals, national government and infrastructure, each with plenty of potential. Energy seems to be their most anticipated gainer in 2008, suggesting that clients offer a "commitment to spending" amid low volatility incurred by oil prices. Add this in with a steady pipeline of products, and we see oil & gas well leveraged in the market. I target Jacobs at a one-year $96 tag, and feel an appropriate purchase price should be from $70-$73.
Ag. Machinery and Construction - Manitowoc (NYSE: MTW)I have been a fan of Manitowoc cranes for the past few quarters, now we finally have the market underpricing this company like we want. Manitowoc competes with Terex (NYSE: TEX), an excellent company by all marks with high growth potential. However, I feel that most analysts miss on the fact that Terex's cranes are low quality... workers want Manitowoc! They have already capitalized on international demand, and smashed earnings estimates of 68 cents with 74 cents. Earnings reports also yielded that continuing operations performance rose 119% year-over-year and sales of cranes jumped 56%. Manitowoc's management confirmed that despite worries about the housing construction market, MTW's operations were indeed minimally exposed to the pain.
There is no reason for this trend to slow in 2008, and trading under $40 is just not fair. We all know that the agriculture market has been surging as of late. Manitowoc has a hand in producing related equipment, and is also a major player in the emerging Asian markets... where non-residential construction is constant. Management believes they can maintain strong growth by focusing on new product introductions, market share increases (achieved by cross-selling through its expanded distribution network), and improved penetration in Asia. Prior to the sell-off in late-2007/early-2008, the crane industry was seen as "in the middle of a multi-year up-cycle" in demand and production. I expect this trend to continue now that shares of Manitowoc have unprecedentedly been crushed off their highs. I can see them hitting $54 a share, with an appropriate purchase price just under $39 for optimal value.
There are plenty of places to look for growth in 2008 out of the industrials sector. While I did not find any defense & aerospace companies particularly appetizing, I am bullish on the industry and would suggest looks at United Technologies (NYSE: UTX), Northrop Grumman (NYSE: NOC) and Lockheed Martin (NYSE: LMT). Agriculture giants like Deere & Co. (NYSE: DE) may make viable investments as well, but you must be wary of the premium you often need to shell out for shares of stock. Please feel free to email me any stock questions you may have. -The Net Fool
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