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I am submitting Ingersoll-Rand (NYSE:IR) for your consideration. This is a diversified manufacturer of a broad line of specialized equipment and tools. It makes a complete line of air compressors, vacuum pumps, air dryers, bearings, rocks drills, mining machines, pavement millers, coal haulers, many types of water pumps, aerators and dewatering systems, air hoists, air tools, electric and hand tools, engine starting systems, winches, industrial robots, golf cars, and door locks.

On October 4, 2011 IR posted its 52-week low of $25.86. There were over 1,000 new lows posted that day and IR seems to have gotten dragged down with the rest of the market. It had hit its 52-week high of $52.33 on May 10, 2011. At a recent price of $27.94 gives us a persuasive entry point. Many other quality stocks hitting lows on 10-4-11 have since recovered, but IR is still lagging.

It seems to me that the Street was putting too much emphasis on the news that management had reduced 3rd Q guidance from 85¢-95¢ down to 77¢-80¢. Third Q actually came in at 81¢ from continuing operations compared to 80¢ in last years 3rd Q. That is without charges related to the 60% sale of its Hussman unit. Analyst estimates usually exclude one-time items. That beat the company's 3rd Q expectations of 77¢ to 80¢/share. This brought earnings for the first 9 months to $2.05/share. As to the 4th Q, consensus estimates are looking for around 75¢ or $2.80 for the full year. That is still an increase of some 25% over 2010’s $2.23/share.

Meanwhile, IR’s 3rd Q revenue increased 5% to $3.93 billion, up a bit from analysts expected $3.92 billion. Without the recently divested piece of Hussmann, total revenue was up approximately 7%. Looking out to 2012 analysts are anticipating in excess of $3.25/share. A further look at the numbers shows a current book value of $25/share, just $2 below market. Plus IR is sitting on over $1.2 billion in cash assets and trading at 10 times 2011’s annual earnings, and 8.6 times 2012’s estimated earnings. IR has maintained a 10-year average PE of 17!

As to the dividend, it was reduced to 7¢/Q in September 2009 from 18¢/Q, but that was raised to 12¢/Q in June 2011. A look at its 10-year average payout ratio reveals an average of 23%. This tells us that another dividend increase could very well be forthcoming. Based on 2011’s anticipated earnings of $2.80 this could mean a dividend increase to 15¢/Q. Also management intends to repurchase 28 to 32 million outstanding shares which is to be funded by the Hussman sale. Looking 3 to 4 years out, investors may want to consider IR’s total return potential.

Source: Ingersoll-Rand Offering Generous Total Return Potential