6 Value, Large-Cap Industrial Stocks With Forecast Growth Of 15% Or Better
F.A.S.T. Graphs | Apr 18, 2012 06:27AM ET
This article looks at six large-cap industrial companies that are expected to grow earnings at 15 to 20% over the next 3 to 5 years. Even though these industrial stalwarts do possess moderate levels of cyclicality,they usually generate above-average earnings growth as they come out of cyclical troughs. Consequently, if you can buy them when their valuations are attractive and as they are entering a growth phase, they can be very attractive intermediate-term investment opportunities.
The following table summarizes six large-cap industrial stocks with forecast earnings growth of 15% or better that appear to be attractively valued, and lists them in order of dividend yield highest to lowest. From left to right, the table shows the company’s stock symbol and name. Next, two valuation metrics are listed side-by-side, the current PE ratio followed by the historical normal PE ratio for perspective. Then the five-year estimated earnings per share growth is shown next to each company’s historical EPS growth providing a perspective of the past versus the future growth potential of each company. The final three columns show the current dividend yield, the company sector and its market cap.
Closer Look at the Past and the Future Potential
Since a picture is worth 1,000 words, we’ll take a closer look at the past performance and future potential of each of our five candidates through the lens of www.paccar.com .”
The consensus of 17 leading analysts reporting to Capital IQ forecast PACCAR Inc’s long-term earnings growth at 18.8%. PACCAR Inc has medium long-term debt at 30% of capital. PACCAR Inc is currently trading at a P/E of 14.2, which is below the value corridor (defined by the five orange lines) of a maximum P/E of 22.5. If the earnings materialize as forecast, PACCAR Inc’s True Worth™ valuation would be $149.54 at the end of 2017, which would be a 25.3% annual rate of return from the current price.
Get The News You Want
“It was 150 years ago that Abraham Lincoln signed the Pacific Railway Act of July 1, 1862, creating the original Union Pacific. One of America's iconic companies, today, Union Pacific Railroad is the principal operating company of Union Pacific Corporation (NYSE: UNP), linking 23 states in the western two-thirds of the country by rail and providing freight solutions and logistics expertise to the global supply chain. From 2000 through 2011, Union Pacific spent more than $31 billion on its network and operations, making needed investments in America's infrastructure and enhancing its ability to provide safe, reliable, fuel-efficient and environmentally responsible freight transportation. Union Pacific's diversified business mix includes Agricultural Products, Automotive, Chemicals, Energy, Industrial Products and Intermodal. The railroad serves many of the fastest-growing U.S. population centers and emphasizes excellent customer service. Union Pacific operates competitive routes from all major West Coast and Gulf Coast ports to eastern gateways, connects with Canada's rail systems and is the only railroad serving all six major Mexico gateways.”
The consensus of 25 leading analysts reporting to Capital IQ forecast Union Pacific Corp’s long-term earnings growth at 15%. Union Pacific Corp has medium long-term debt at 32% of capital. Union Pacific Corp is currently trading at a P/E of 15.1, which is inside the value corridor (defined by the five orange lines) of a maximum P/E of 18. If the earnings materialize as forecast, Union Pacific Corp’s True Worth™ valuation would be $243.19 at the end of 2017, which would be a 16.9% annual rate of return from the current price.
“For more than 85 years, Caterpillar Inc. has been making sustainable progress possible and driving positive change on every continent. With 2011 sales and revenues of $60.138 billion, Caterpillar is the world’s leading manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives. The company also is a leading services provider through Caterpillar Financial Services, Caterpillar Remanufacturing Services, Caterpillar Logistics Services and Progress Rail Services.”
The consensus of 17 leading analysts reporting to Capital IQ forecast Caterpillar Inc’s long-term earnings growth at 20%. Caterpillar Inc has high long-term debt at 65% of capital. Caterpillar Inc is currently trading at a P/E of 12.6, which is below the value corridor (defined by the five orange lines) of a maximum P/E of 24. If the earnings materialize as forecast, Caterpillar Inc’s True Worth™ valuation would be $458.27 at the end of 2017, which would be a 29.9% annual rate of return from the current price.
Summary and Conclusions
Each of the six large-cap industrial companies reviewed in this article are expected to deliver significantly above-average growth for at least the next 3 to 5 years. But most importantly, each of these selections are trading at fair to low valuations based on current expectations for growth. Therefore, if the estimates prove correct they would offer the opportunity for above-average capital gains and a potentially growing dividend income stream. However, prospective investors should carefully consider the cyclical nature of each of these industrial stalwarts’ historical business results. If they were to be purchased, they also need to be carefully monitored regarding the health of their respective business levels.
Disclosure: No positions at the time of writing.
Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit transactions or clients. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. We do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation.
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