Tags: Three | industrial | Stocks | Economic | Recovery | cummins | eaton

Three Industrial Stocks for Economic Recovery

By    |   Monday, 11 Apr 2011 10:55 AM

The U.S. economy is in recovery mode and, even if the rebound falters, many economies overseas, and particularly China, are growing smartly.

That creates a strong backdrop for investing in the stocks of industrial companies. Part of the reason is that growth means demand for mining and other heavy equipment. Three firms that merit attention in this sector are Caterpillar (CAT), Eaton (ETN) and Cummins (CMI).

Caterpillar

The Peoria, Ill.-based company reported net income of $2.7 billion last year, more than tripling its 2009 total of $895 million. Business was particularly strong in China, Latin America, and Australia. Caterpillar, the world’s largest heavy equipment maker, forecast earnings per share will rise about 45 percent this year.

Caterpillar’s $7.6 billion deal to buy Bucyrus (BUCY), awaiting expected approval by regulators, would expand its presence into the mining equipment business, which could be quite lucrative if commodities prices continue to rise. Caterpillar could now offer customers a broad range of equipment from mining trucks to hydraulic excavators to electric-rope shovels.

Cat management just announced it would spend $5 billion by 2015 to increase plant capacity in expectation of demand for construction machinery, particularly from emerging markets.

Eaton

Eaton, based in Cleveland, garnered profit of $929 million in 2010, up 143 percent from $383 million a year earlier. That enabled the manufacturer of electrical components and systems to boost its dividend by 17 percent.

Eaton’s expansion into emerging markets gives it a solid foundation for sales growth. It now serves more than 150 countries. The company’s main customers are car and truck makers, but it has expanded into other areas, even equipping the F-35 fighter jet.

Goldman Sachs analyst Terry Darling issued a bullish report on Eaton in February and said the share price could rise to about $80 in the next year, up from $54.40 April 8.

Cummins

A maker of diesel engines, power generation, and filtration systems, Cummins is based in Columbus, Ind. Its profit hit a record $1.04 billion last year, more than doubling its 2009 total of $428 million. Sales were particularly strong in China, Brazil, and India, making up for weakness in the United States.

Low costs and high-quality products fuel Cummins’ strength. Part of the reason why costs are low is that it makes almost all of its engine parts itself, unlike most competitors.

“Cummins has been a broad (stock) market standout … with a gain of roughly 140 percent in 2010,” and may be headed higher still, Andrea Kramer of Schaeffer’s Investment Research writes on Stockhouse.com.

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The U.S. economy is in recovery mode and, even if the rebound falters, many economies overseas, and particularly China, are growing smartly. That creates a strong backdrop for investing in the stocks of industrial companies. Part of the reason is that growth means demand...
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