Buy Shares of Industrials Like Caterpillar, Oppenheimer Says

Investors should buy shares of industrial companies, which have improving operating performance, “reasonable” valuations and “strong” cash flows, according to Oppenheimer & Co.

Brian Belski, Oppenheimer’s New York-based chief investment strategist, recommended 22 industrial companies, including Caterpillar Inc. (CAT), Union Pacific Corp. (UNP) and FedEx Corp. (FDX) He considered companies in the Standard & Poor’s 1500 Index that have a forward price-to-earnings ratio lower than 15, and S&P stock rating of B+ or better, estimated 2011 and 2012 earnings- per-share growth greater than 10 percent, and increasing forward free-cash-flow yield.

“Investors are becoming increasingly nervous regarding the sustainability of global and domestic economic growth,” Belski said in a note today. “We recommend that investors focus on higher-quality areas with consistent to improving operating performance, reasonable valuations and strong cash-flow generation. In our view, industrials provide investors with all these attributes.”

A gauge of industrial shares in the S&P 500 has risen 7.2 percent this year, compared with a 6 percent gain in the broader benchmark index. The industrial companies have a price-to- earnings ratio of 17, while the S&P 500 is trading at a multiple of 15.1.

The following list contains the 22 industrial companies Belski
recommends. Ticker symbols are in parentheses:

Actuant Corp. (ATU US)
Applied Industrial Technologies Inc. (AIT US)
Brady Corp. (BRC US)
Carlisle Cos. (CSL US)
Caterpillar Inc. (CAT US)
CSX Corp. (CSX US)
Cummins Inc. (CMI US)
Curtiss-Wright Corp. (CW US)
Dover Corp. (DOV US)
Emerson Electric Co. (EMR US)
Eaton Corp. (ETN US)
FedEx Corp. (FDX US)
Honeywell International Inc. (HON US)
Hubbell Inc. (HUB.B US)
Illinois Tool Works Inc. (ITW US)
Lennox International Inc. (LII US)
Norfolk Southern Corp. (NSC US)
Parker Hannifin Corp. (PH US)
Regal-Beloit Corp. (RBC US)
Rockwell Collins Inc. (COL US)
Snap-On Inc. (SNA US)
Union Pacific Corp. (UNP US)

To contact the reporter on this story: Joanna Ossinger in New York at jossinger@bloomberg.net.

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net.

Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.