In times of high market volatility, it can be reassuring to fall back on timeless investment fundamentals. One of the easiest ways to accumulate wealth over time is to invest in quality businesses in growing industries. Big companies like Deere (OF -2.26%), Emerson Electric (EMR -3.76%)and eaton (AND N -4.71%) may not pay the highest dividends. But they’ve proven they can grow their earnings and payouts over time.
Long-term investors care less about a stock’s current dividend yield and more about the company’s suitability and prospects. Here’s what makes these three industrial stocks worth owning right now.
Deere is firing on all cylinders
Daniel Foelber (Deere): Deere reported a strong third quarter of fiscal 2022 and is on track to generate record net income of $7 billion to $7.2 billion for the full fiscal year. On the face of it, Deere’s record year can be attributed to high commodity prices, which spurred investment in Deere’s end markets in agriculture, forestry and construction. However, the most important story is the pricing power of Deere, which successfully offset the headwinds of inflation.
For full-year 2022, Deere forecasts a 14% price increase in its largest segment, Production and Precision Ag, along with a 9% price increase in Small Ag and turf, and a 10% price increase in construction and forestry. .
As excellent as Deere’s current performance is, a single record year isn’t enough to justify a long-term investment thesis. But Deere has much more to offer than its fiscal year 2022 results. The company’s research and development spending is at an all-time high as it invests capital in automation, electrification and intelligence solutions. artificial.
Deere’s 2022 investor presentation centered on the company’s belief that farmers are going to have to do more with less. Past growth was centered on expansion. Deere believes future growth will be about efficiency. In other words, generating a higher agricultural yield from the same piece of land and sustainably developing that land for longer.
Deere’s mix of short-term success, in-house software and hardware, and high-end brand power makes it one of the most unique companies in that it combines legacy industrial roots with aggressive investments in technology. Investors should note that Deere prioritizes a strong balance sheet and growth investments over dividends and stock buybacks. For people who love dividend-paying stocks but are more focused on growing a business than its passive income stream, Deere could be a great buy now. And in the long run, its growing dividend could prove to be an even more important source of passive income than companies with higher yields today but lower growth prospects.
Emerson Electric is a good value stock
Lee Samaha (Emerson Electric): Down 6.5% in 2022, and with a poetic symmetry that escapes me, the Dividend Aristocrat is in its 65th year of increasing its dividend. However, poetry isn’t just the reason to buy Emerson Electric. There are three other main reasons to buy the stock. First, Emerson is a good value stock that trades at 17 times the midpoint of management’s 2022 earnings forecast. Additionally, the earnings forecast per share of $5.05 to $5.15 means its dividend of $2.05 per share is covered 2.5 times.
Second, Emerson’s end markets offer significant long-term growth prospects. Its automation solutions business benefits from the continued need for investment in power, refining and heavy industries. Meanwhile, its commercial and residential solutions business (a loose set of heating, ventilation and air conditioning, or HVAC, solutions and tools and home products businesses) is benefiting from global HVAC growth. . The latter is driven by increased urbanization (urban areas tend to be warmer than rural areas) and the demand for HVAC from the growing middle classes in the emerging world.
Finally, Emerson has the possibility of improving its profitability by divesting its non-core activities. For example, CEO Lal Karsanbhai wants to divest some of his upstream oil and gas business. Another example comes from the recent announcement of an intention to sell its food waste disposal business, InSinkErator, to Tourbillon for $3 billion. All told, there are plenty of growth opportunities, and the modest valuation makes Emerson a candidate for good growth at a reasonable price.
Purchasing this blue chip can recharge your wallet
Scott Levine (Eaton Corporation): Falling nearly 16% year-to-date, Eaton shares haven’t followed the same trajectory that saw them soar 44% in 2021. That’s not to say something is fundamentally wrong. in the business. Instead, the stock’s tumble is largely tied to the same issues plaguing so many other companies this year: supply chain challenges and inflation.
But this isn’t Eaton’s first rodeo. With a history dating back more than 110 years, this energy management company has had its ups and downs over the past century, and it’s still thriving — and will likely continue to thrive for years to come. And blue-chip investors who choose to buy stocks and get in on the action can enjoy a healthy forward dividend yield of 2.2% as the story unfolds.
What’s fueling the growth of this energy management company? One of the biggest tailwinds energizing Eaton is the growing craze for electric vehicles (EVs). The passage of the Cut Inflation Act and the news that California – and potentially other states to follow – intends to ban the sale of gasoline-only cars by 2035 are just two signals that demand for electric vehicles is about to increase. Since those EV batteries won’t recharge, Eaton’s will be there to help keep the wheels turning. From powertrains that help transition electric vehicles to charging infrastructure, the company offers a variety of products and solutions that meet the diverse needs of electric vehicle drivers.
The increased focus on improving the resilience of the country’s grid represents another substantial growth opportunity. The infrastructure bill signed by President Biden last November includes $65 billion in funding for clean energy transmission and improvements to the nation’s aging power grid — areas where Eaton specializes.