3 Industrial Companies You Need In Your Portfolio - 3M, Raytheon, L-3

Includes: LLL, MMM, RTN
by: Renee Butler


Industrial stocks tend to do well when the economy does well.

Economic growth is likely to stall in the next few years - what goes up must come down.

Until then, these three companies are going to do well.

Industrial stocks may not be big headliners like Apple in the tech community or Amazon in consumer goods, but that doesn't mean they aren't good additions to your portfolio. Industrials typically grow with the economy. Their products and services are the lifeblood to growing business, so when the economy is strong, these companies just keep growing.

Right now, the markets have been making record highs, but that sort of a run never happens forever. There will be a cool off, and growth will stall - possibly by 2017. What goes up must come down, but there is still room to buy in before this economic bubble bursts.

3M (NYSE:MMM) is a $94.95 billion market cap company that operates in everything from adhesive tape to electronics, paint to cleaning supplies. This level of diversification has led to a company that is well known and not as volatile as other players in the sector.

3M's share price has climbed roughly 50% over the past three years and there is no reason to think that growth won't continue. The company has a solid earnings record. "During the past fiscal year, 3M CO increased its bottom line by earning $6.72 versus $6.31 in the prior year. This year, the market expects an improvement in earnings ($7.46 versus $6.72)," writes TheStreet. "The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Industrial Conglomerates industry average," increasing by 6.9% over the same quarter one year prior.

3M is currently trading at $145.12 on a 52-week range of $112.36 to $146.25, or roughly 20 times its earnings. The company carries a 2.4% dividend yield and was recently upgraded by Argus to a buy from hold. Some analysts say the company could go as high as $161 over the next year. 3M recently took full control of its Sumitomo subsidiary; the deal is expected to close at the beginning of September this year, at which point the subsidiary will become 3M Japan.

Raytheon Co. (NYSE: RTN) is an aerospace and defense products company specializing in mission systems integration and state-of-the-art sensing systems. As of 2013, the $29 billion market cap company had $24 billion in sales and 63,000 employees. The 92-year-old company is a subcontractor on Boeing (NYSE:BA)'s $41 billion ground-based Midcourse Defense (GMD) system, a defense system against long-range ballistic missiles and it's good at what it does.

Last month, Raytheon celebrated its 35th successful space intercept for its missile kill vehicle family and its earnings per share has been growing consistently over the past two years. All signs points to that trend continuing. According to TheStreet, "During the past fiscal year, RAYTHEON CO increased its bottom line by earning $5.96 versus $5.66 in the prior year. This year, the market expects an improvement in earnings ($6.95 versus $5.96)," and its net income has been seeing the same sort of improvement. And, its share price has not been keeping pace.

Raytheon is currently trading at $96.86 on a 52-week range of $64.48 to $102.33 and is priced low at just 14.96 times its earnings. Its stock is up over 37% compared to last year and its earnings per share is strong. Some analysts say this stock could go as high as $119 in the next year.

Compared to the same quarter one year prior, Raytheon's net income increased by over 22%, to $596 million from $488 million. Add this to levels of debt well below that of its industry and a 2.5% dividend yield, and Raytheon is a good bet for the future.

L-3 Communications (NYSE: LLL), like Raytheon, is also in aerospace and defense, but its focus is on military communication systems. The $10 billion market cap company recently increased its dividend this year to $0.60 from $0.55, representing its 10th consecutive dividend increase since the company began offering dividends to investors in 2004. But that's just scratching the surface.

L-3 revenue has slightly underperformed its industry average and the effect of that is clear in the company's earnings per share. During the past fiscal year, the company did manage to boost its EPS to $8.54 from $8.03, and its earnings are expected to contract by nearly 2% in the next year, moving to $8.38, but L-3 is a solid long position with a 1.9% dividend.

L-3 has low levels of debt and rebounding free cash flow. Plus, at $120 per share, the company is trading at just 14 times its earnings and it is trending up. JPMorgan Chase puts a $135 price target on the company, and there isn't any reason the stock couldn't go much higher, especially over the long term. L-3 just won a $151.4 million maintenance and logistics contract from the Department of Defense and a $73 million contract for medium-range ballistic missile target vehicles with options valued at over $400 million.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.