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Large, popular stocks like Apple (NASDAQ:AAPL), Google (NASDAQ:GOOG) and Nokia (NYSE:NOK) get a huge amount of media coverage because of the nature of products they offer, which are directly in contact with consumers. These are companies with strong performances, but there are many great stocks with smaller market caps and stronger earnings increases. Some of the companies in the Industrial Goods sector are a perfect fit to this statement. The performance of stocks in the Industrial Goods sector, due to the very nature of their operations, tend to track the overall economy. It is generally the first sector to realize gains from improvements in the economy.

Discussed below are two industrial goods companies that have dividend yield greater than 3% and more than 5% EPS growth. Each stock is analyzed on its current performance and future outlook.

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Source: Yahoo! Finance

The One to Buy:

Sturm, Ruger & Co (NYSE:RGR) is the leading manufacturer of high-quality firearms for the commercial sporting market and it also produces precision steel investment casting. The company mainly offers product under four categories: rifles, shotguns, pistols and revolvers.

The gun company's fourth-quarter 2012 earnings heavily outperformed analyst expectations, posting earnings of $1 per share. Sales totaled to $141.8 million in the last quarter, and net income for the full fiscal 2012 came in at $491.8 million, or $3.60 per share - an increase of 77%.

The company paid special dividends of $4.50 per share on all issued and outstanding shares of common stock, reflecting that the company believes in keeping less cash reserves and is willing to share its profit with shareholders. In addition, Ruger's balance sheet indicates it has no long-term debt and cash reserves of $31 million.

As fellow Seeking Alpha contributor Richard Bulkeley indicates in his article, RGR's enhanced performance is largely due to manufacturing improvements. In 2012, the company increased the number of units by 52% more than in 2011. The top line management has rolled out lean manufacturing principles. With enough cash to continue its plan, the management team's primary challenge is to meet demand and maintain its pace.

The One to Watch:

Raytheon (NYSE:RTN) is a company specializing in defense, homeland security and other government markets worldwide. The company is expected to grow in revenue and earnings due to its strong foothold in the area of Intelligence, Surveillance and Reconnaissance (NYSEMKT:ISR); air & missile defense systems; border security; air traffic management; training and homeland security; and cyber security.

The company locked in a three-year Defense Threat Reduction Agency (DTRA) border security agreement at $35.9 million. Raytheon will design, develop and implement the integrated surveillance system at sections of the Jordanian border.

Raytheon has a clear outline of how to execute its programs and also efficiently manages its capital along with strategic investments. Despite significant cuts in U.S. defense spending, the company is still in a strong position in comparison to large-cap defense players backed by its non-platform-centric focus. Raytheon's order book is impressive along with a strong balance sheet and increasing cash flows, all of which are positive key points that investors should consider.

The fourth-quarter booking of the company came in at $7.9 billion, which totaled in a book to bill of 1.23. Raytheon's revenue surged 8% in the fourth quarter compared to the same period last year. For full fiscal 2012, international revenue came in at 26% of total revenue. The company's outlook for the next three years is encouraging as it expects strong earnings and cash flows.

However, there are concerns regarding the future growth in the U.S. defense budget, the fate of high-cost programs, risks related to key project executions and order cancellations that may adversely affect the growth prospects for Raytheon.

Conclusion

Sturm Ruger looks like the best bet, because although product demand has fallen in the U.S. and other markets, it will eventually pick up. Raytheon on the other hand, while performing well, is trading near its 52-week high and there are lingering concerns regarding defense budget cuts, which could cause significant downside.

Source: 1 To Buy, 1 To Watch: 2 Industrial Goods Companies With Greater Than 3% Dividend Yield

Additional disclosure: Black Coral Research is not a registered investment advisor or broker/dealer. Readers are advised that the material contained herein should be used solely for informational purposes. Investing involves risk, including the loss of principal. Readers are solely responsible for their own investment decisions.