Illinois Tool Works Is A Buy Here

| About: Illinois Tool (ITW)
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Illinois Tool Works (NYSE:ITW) is a manufacturer of diverse industrial products and has operations in 57 countries. Just like the rest of the market, ITW has fallen over the past month and is currently hovering over its 52-week low. This is a great opportunity to jump on this stock which is a strong company with good fundamentals. Let's just see how good the fundamentals are:

P/E: 12
Forward P/E: 9.88
PEG: .90
Price/Sales: 1.26
Price/Book: 2.07
Price/Cash Flow: 9
Dividend Yield: 3.29
Total Debt/Equity: 39
Return on Equity: 20

This is a very good start to analyzing fundamentals. As you can see, Illinois Tool Works is undervalued in the forward P/E and PEG area, Price/Sales is normal valued and even Price/Book is the range of normal (although it is getting more on the high side). Cash flow is in a good range and you getting a nice dividend while you wait for a rebound. It should be noted that ITW's board of directors recently increased the dividend by 6% and will be payable on October 12 to investors that are holding the stock through September 30, 2011. Total debt is very manageable and ITW's ROE greatly outpaces the industry average of 6.

As you can see the fundamentals are pretty strong and no doubt ITW will benefit greatly from a worldwide recovery. However, despite the good fundamentals, some investors have been worried about a possible slow in growth for ITW. ITW recently came out and revised 2011 FY EPS under analysts' estimates and lowered EPS guidance for 2011 FY.

Despite this revision lower, I believe the long term story remains intact. The short term could be rocky but ITW will be a huge beneficiary of a world recovery. It's better to look at ITW as an investor and not a trader, the investor side looks a lot more rosy.

Illinois Tool Works' recent acquisition of Despatch Industries will give ITW more exposure into thermal energy processing sectors such as solar and carbon fiber. This could be very profitable for ITW over the long term as alternative energy becomes more popular.

In short, if you are looking for a long term trading opportunity in the industrial sector, ITW is your stock. If you want more of a leveraged approach, I would recommend the Jan 12 42.50 calls or March 12 45 calls. Both owning the stock and LEAP options work well; it's up to you how you want to play ITW over the long term. Illinois Tool Works is a winner; get some while it's still cheap.

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