3 Capital Goods Companies That Wall Street Wants You To Buy

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 |  Includes: DE, GFA, MTW
by: Takeover Analyst

What follows is a list of companies that specialize in capital goods that are rated favorably on the Street. They cover a variety of industries: home construction and commercial vehicles and trucking. Gafisa (NYSE:GFA) is the most preferred given its risk mitigation strategies and attractive multiples. Not surprisingly, all have high betas since they are largely dependent on infrastructure and capital spending.

Gafisa

Gafisa is rated a "buy" and trades at a respective 10x and 5.7x past and forward earnings with a dividend yield of 4%.

Consensus estimates for Gafisa's EPS forecast that it will decline by 60.9% to $0.43 in FY2011 and then grow by 79.1% and 46.8% in the following two years. Assuming a multiple of 10x and a conservative EPS of $1.06, the stock has tremendous upside. Fourth-quarter results were soft, but management is taking the proper initiative to shift away from Tenda and toward Alphaville. It is further mitigating cash flow burn through securitizing receivables.

Deere & Co. (NYSE:DE)

Deere is rated a weak "buy" and trades at a respective 13.4x and 10.8x past and forward earnings with a dividend yield of 1.9%.

Consensus estimates for Deere's EPS forecast that it will grow by 17.6% to $7.80 in 2012, and then by 5.4% and 3.4% in the following two years. Assuming a multiple of 13x and a conservative 2013 EPS of $8.11, the rough intrinsic value of the stock is $105.43, implying 19.1% upside. Continuing its strong track record, Deere closed 2011 with stellar results. Although the fact that three-fifths of its business comes from North America is concerning given economic uncertainty, plant building in China, Brazil, and India, as well as $2B worth of R&D expenditures, exude confidence in fundamentals.

Manitowoc (NYSE:MTW)

Manitowoc is rated a weak "buy" and trades at a respective 78x and 10.6x past and forward earnings with a dividend yield of 0.5%.

Consensus estimates for Manitowoc's EPS forecast that it will grow by 131.6% to $0.88 in 2012, and then by 73.9% and 35.9% in the following two years. Assuming a multiple of 15x and a conservative 2013 EPS of $1.43, the rough intrinsic value of the stock is $21.45, implying 31% upside.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.