No Signs of Recession with This Basket of Stocks
Friday February 15, 7:00 am ET
By Tom D'Amore, CFA
...And Why It Stands to Outperform
While a consumer-driven dip in the U.S. economy may be unavoidable, we see no signs of abatement in the global demand for natural resource-related process equipment and systems, or in emerging markets' demand for industrial infrastructure. Generally, company order books are the single best predictor of future sales results. The largest producers of industrial controls reported growth in their order books ranging from 9% to 30% in the fourth quarter of 2007, indicating solid support for future sales. Honeywell, the biggest U.S.-based supplier of industrial controls, saw the highest order growth, indicating that its orders increased 30% over the prior-year period. Honeywell's orders were driven by robust global demand from process industries, particularly in emerging markets. Emerson, another formidable supplier of industrial controls for process management, is enjoying solid order growth as well. Based on Emerson's business disclosures, we estimate that its process management orders increased 15% to 20% in the fourth quarter. We believe that demand from oil and gas processing markets is driving the increased orders at Emerson.
Our Favorite Stocks in this Market
ABB, Siemens, and Emerson have all achieved 5-star ratings under the Morningstar valuation methodology, and we expect them to generate significant earnings growth in 2008. We think Siemens stands to grow earnings by at least 20% this year, driven by increased sales of industrial controls as well as improved operating margins accomplished through restructuring. ABB should deliver earnings growth of about 19% in 2008, driven by increased sales of industrial controls as well as power products and systems. Finally, we're pegging Emerson's growth for the year at 14%, as its process management, industrial automation, and network power divisions are all poised to deliver double-digit sales growth and improved operating margins.
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