For the past two years, one of the biggest themes on Wall Street was single and multifamily housing construction. The top stocks in the categories were huge winners, many of which had sunk to single-digit prices during the market lows in 2009. While the housing market is still bright for the balance of 2014 and into next year, despite the sour builders confidence numbers for January, much of that low hanging fruit has long been picked.
One area that still has big potential upside is non-residential construction. Non-residential construction is still way below the peaks that were setback in December of 2005. In a new research report, the analysts at Stifel make the case that while residential housing construction should remain strong, non-residential may have a lot more upside from this juncture in the market. With a continued low interest rate environment and public project funding starting to stabilize, and in some areas even grow, the time to buy diversified industrial stock may be right now.
Here are the five top diversified industrial stocks to buy now at Stifel.
Actuant Corp. (ATU) will attend the Gabelli Industrial conference later this month and update investors on what looks to be a solid 2014. The company designs, manufactures and distributes a range of industrial products and systems worldwide. It operates in three segments: Industrial, Energy and Engineered Solutions. Investors are paid a miniscule 0.1% dividend. The Stifel price target for the stock is $42. The Thomson/First Call estimate is $39.67. The stock closed Wednesday at $34.05.
Illinois Tool Works Inc. (ITW) is one of the top names in the diversified industrial sector, and a buy at Stifel. The company will be selling its industrial-packaging group to Carlyle Group for an estimated $3.2 billion. Carlyle will finance the deal in part with equity from the $13 billion U.S. buyout fund it closed in November. Investors are paid a 2.1% dividend. The Stifel price target is $90, and the consensus target is $88.14. Illinois Tool Works closed Wednesday at $79.41.
Kennametal Inc. (KMT) manufactures and supplies tooling, engineered components and advanced materials consumed in production processes worldwide. The company operates in two segments, Industrial and Infrastructure. It offers standard and customized technologies for metalworking, such as metal-cutting tools, tooling systems and services, as well as materials, including cemented tungsten carbide products, super alloys, coatings and investment castings. Investors are paid a 1.6% dividend. Stifel sets its price target at $53, and the consensus target is $50.86. The stock closed Wednesday at $43.15.
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Lincoln Electric Holdings Inc. (LECO) recently reported a 38% year-on-year improvement in its fourth-quarter 2013 adjusted earnings to $1.09 per share (including $0.22 per share from Venezuelan operations). Results also beat the consensus estimate of $0.84. The company believes that it will benefit from investment in business for growth, which includes an active acquisition program and development in manufacturing platforms. In addition, the company's dividend program and share repurchases activity will be accretive going forward. Shareholders are paid a 1.3% dividend. The Stifel price objective is $80, while the consensus target is $73.40. The stock closed Wednesday at $72.94.
Timken Co. (TKR) rounds out the list of the top five diversified industrial stocks to buy at Stifel. The Timken Company engineers, manufactures and markets mechanical components and high-performance steel products worldwide. It operates through four segments: Mobile Industries, Process Industries, Aerospace and Defense, and Steel. Recently, the company announced a 9% increase in its dividend. Investors are now paid a 1.7% dividend. The Stifel price target is $65, while the consensus target is lower at $63. The stock closed Wednesday at $58.66.
The top diversified industrial stocks will hardly wet the chops for momentum investors. Neither did the housing stocks in the depths of the market sell off and mortgage debacle. One thing is for sure, when the commercial construction market finally starts to get up to speed, Wall Street will take notice and pound the table on these names. The trick is to buy earlier and wait for others to get in line.
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