Will big industrial companies fare better than the smaller, more nimble ones? We’ve picked four industrial giants to look at:
Caterpillar Inc. (CAT): Shares are trading at $87.95 at the time of writing, in the middle of their 52-week trading range of $63.92 to $116.55. At the current market price, the company is capitalized at $56.82 billion. Earnings per share for the last year were $6.05, putting it on a price to earnings ratio of 14.55. It paid a dividend of $1.84 (a yield of 2.20%).
First, is the industry sector in which the company operates a good one? The world always needs food, and as its population grows, growing and harvesting methods will have to advance to better cope. With gold, silver and other metals at highs, there will be a need for mining companies to invest in mining equipment. Caterpillar serves both these markets with its equipment and engine manufacturing. The one potential cloud is the construction industry, which may be sluggish over the coming few years if analyst warnings are anything to go by. Comparing it to Deere (DE), the primary market ratings numbers - price to earnings (13.02), dividend yield (2.20%) - stack up very similarly. Deere leads Caterpillar in agricultural equipment, but has no diversification away from this. In my view this gives Caterpillar the edge, and with chances of seeing the share price move up toward its 12 month high.
Monsanto Company (MON): Shares are trading at $70.76 at the time of writing, at the upper end of their 52-week trading range of $47.07 to $77.09. At the current market price, the company is capitalized at $37.84 billion. Earnings per share for the last year were $2.87, placing the shares on a price to earnings ratio of 24.66. It paid a dividend last year of $1.20, yielding 1.70%.
Finding and developing ways to increase growing crops and make food production more economical is going to be a growth area as the world’s population and longevity continues to expand. Companies like Monsanto and Syngenta AG (SYT) specialize in this area, and look good for profit growth and share price gains in the near future. Of the two, Monsanto has less debt on its books, $2.24 billion vs $3.94 billion, and similar cash, $1.22 billion vs $1.26 billion. It also has a better operating margin of 21.78% vs 17.31%, and recent quarterly revenue growth is better also at 21.20% vs 14.30%. These figures are why Monsanto commands a higher price to earnings ratio than Syngenta (24.66 vs 18.30), and their purchase now could yield good rewards.
Alcoa Inc. (AA): Shares are trading at $12.20 at the time of writing, as against their 52-week trading range of $10.10 to $18.47. Earnings per share for the last year were $0.87, placing the shares on a price to earnings ratio of 13.96. It paid a dividend last year of $0.87, a yield of 1.00%.
Aluminum is versatile, lightweight, widely used in industry, and relatively cheap. And Alcoa is aluminum. If, however, thoughts of impending economic malaise, and worse, invade your dreams at night, then it may be that you would expect sales of Alcoa's core products to the automotive, aircraft and packaging industries might falter. Of course there’s always China to take up the slack of the West. But here, expect Aluminum Corporation of China (ACH) to do better. With book value of the shares posted as $14.66, the company may have some concrete under them, but don’t expect them to fly.
Boeing Company (BA): Shares are trading at $65.27 at the time of writing, as against their 52-week trading range of $56.01 to $80.95. At the current market price, the company is capitalized at $48.37 billion. Earnings per share for the last fiscal year were $4.73, putting the shares on a price to earnings ratio of 13.80. Boeing is synonymous with the aerospace industry, but dark clouds may be on the horizon. It is the recipient of increasing competition from the European Aeronautic Defence and Space Company in both its commercial and military aircraft divisions. Under such competition, it has recently announced that it is redesigning its 737. A recent order from American Airlines (AMR), while positive news, was expected. Airlines are reluctant to switch to new manufacturers, and so its pipeline business of replacement models should be safe, but it may have to work a lot harder to break into new markets. Lockheed Martin (LMT) shares, offering a yield of 4.10% and a lower price to earnings multiple of 9.14, may be a better buy in this industry space.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.