Get Over the Gloom and Buy This Stock

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Go ahead and kick Tyco (NYSE: TYC) to the curb. As for me, I'm gonna pick it up in my dune buggy and feed it a happy meal.

Looking around, a lot of people are focusing on the negative aspects of the home security, fire protection, and safety company. Sure, the company posted earnings that fell 53% on a GAAP basis, with revenue declining across all its business segments and posting an overall 16% drop to $4.4 billion. And even after adjusting for restructuring and impairment charges, Tyco saw earnings shrink 25% to $0.61 per share.

But the question you should ask yourself is this: So what if Tyco had a lackluster quarter? Did everyone forget that we're still fighting off a global recession? It could have been a lot worse, and I'm bullish on Tyco for several reasons.

Aim low
Beating the Street is becoming a habit for Tyco. The company's quarterly earnings have surpassed analyst estimates in nine straight quarters and have only fallen short on two occasions since late 2003. Granted, that may say more about analysts' competence than about the company's success. But would you rather suffer when a company overreaches in its guidance and falls short, or own a stock that is less ambitious in its guidance but consistently achieves it?

In a perfect world, guidance wouldn't be necessary, and we could simply use available information to make reasonable predictions on our own. In the real world, though, I'd rather see companies exceed expectations than fall short, if for no other reason than that it seems to help build positive momentum for a company and its stock.

Shoot high
Apart from the positive earnings surprises, Tyco has diverse operations and a solid balance sheet. Its home security brand, ADT, shares strong household recognition with competitor Brink's Home Security -- now doing business under the name of Broadview Security (NYSE: CFL) -- and in these worrisome times, the niche has staying power.

Moreover, Tyco's flow control business segment recently landed a big public-private infrastructure contract supporting a huge desalination project in Australia. Desalination is an area that General Electric (NYSE: GE), Siemens (NYSE: SI), and ABB (NYSE: ABB) compete in, and the fact that Tyco can stand up to great competition is a good sign.

Depth chart
Moreover, Tyco has a lot of diversity in its business lines. Each of Tyco's fire protection, safety, electronics, and metals businesses was a multibillion-dollar revenue-generating enterprise in fiscal 2009.

The company has a healthy balance sheet, and on a forward basis, its valuations look more attractive than many of its competitors. With management providing full-year earnings guidance of $2.30 to $2.50 per share in fiscal 2010 -- which could well be conservative yet again -- don't be surprised if Tyco keeps adding to the gains its shares have seen in the past year.

Where do you stand? Share your opinion in the comments section below.