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 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 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.