As we write this letter, earnings season is coming to a close. For many of the companies we are invested in, their managements have been guiding earnings estimates upward for the year. In our blog on March 31, Cash is King, we talked about the favorable prospects for the Industrial sector. As earnings were reported, this sector showed extremely favorable results. This group is a great barometer for the economy and we are encouraged by management’s future optimism. What’s next? We believe the next step will be the equity strategist going back to their desks and recalculating earnings estimates for the overall market. My guess is that it will be upward. More on this later on!
If you have not had the chance to look at the blog, below are a few samplings. To see the entire blog, go to www.catherineaveryinvest.com.
Have a great weekend!
Catherine Maniscalco Avery
CAIM specializes in creating and managing
customized and fully diversified investment portfolios for private investors.
Thursday, April 22, 2010
Emerson Electric Co. (EMR)
Here’s a company that has increased its dividend for 53 consecutive years. With $2.07 in free cash flow, we expect this trend to continue. Company reports on 5/4, $.54e versus $.53. This will be the first quarter of positive year over year gains. While this company is geared more towards later cycle investments, they are thriving in a very difficult environment:
1. Strong balance sheet.
2. Excellent cost controls.
3. Positive momentum in the auto sector and climate business.
Wednesday, April 21, 2010
ITW Blowout Quarter
1. On 4/20, ITW reported 1st qtr eps of .58 versus a $.21 in 2009 (from continuing operations). Consensus was looking for $.57.
2. Most importantly, revenues were up 14.6% from last year’s quarter. I was impressed to see that North America’s base revenues were up7.1%, lending credibility to the fact that we are in a recovery phase in the U.S.
3. Operating margins increased 1050 basis points to 13.4%.
Two industries we have been talking about in our blog, autos and PCs, were strong drivers for the quarters eps. Transportation +35.6%, PC board fabrication business +89.4%!
Now, for the words we all want to hear, management is raising guidance for 2nd qtr to a range of $.74 to $.86. Full year is being guided upwards to $2.72 to $3.08. We continue to like this stock.
Tuesday, April 20, 2010
Tyco Electronics Ltd. (TEL)
Expected to report 1Q on 4/28, $.52 versus $.14 in 2009. This company is a great proxy for the overall economy as they manufacture many goods from consumer to industrial. On a fundamental basis:
1. Strong cash flow of $2.21/sh.
2. 25% debt to total capital.
3. 14% long term eps growth (versus 10% for S &P).
4. This high quality company has been trading at a 10% discount to the market.
We believe the company will have a great year based on better than expected auto sales in the U.S. and a pickup in cap spending later in the year. Exiting low margin businesses should also help the numbers.
Wednesday, March 31, 2010
Yes, cash is king, but it cetainly does no good under the mattress! One of the most cash rich sectors out their are the industrials. This is an overweighted sector for us and one of our favorite names is Illinois Tool Works (ITW). In addition to it’s 2.6% dividend yield, this cash rich company ($2.53 free cash flow/sh)has been a master at cutting costs in the downturn and is on it’s way to positive revenue growth in 2010. Even though companies have been keeping lean inventories, at some point they will have to do restocking. GM has recently reported a sales increase of 11.5% in February with some new producs sellling out! ITW will benefit from all of this. Even if interest rates do move up and cramp economic growth, you have a cash rich company paying you a dividend while you wait. As long term investors, our minimum time horizon is 12-18 months. Our target price is 15x 2012e of $4 or $60. that’s a 20% upside plus the 2.6% dividend yield.