The past two months have certainly reaffirmed the manic nature of markets. A steady stream of economic news, some positive but mostly negative, helped send the market plummeting and then surging, probably making the average investor first frightened then perplexed. And while the market seems to have recovered a fair amount of its recent losses, despite little actual resolution of the original issues, some sectors remain beleaguered. Not as a result of their own doing, these companies, thriving though they are, look like potentially cheap opportunities for long-term value investors.
Unglamorous and overlooked
The industrials sector in general doesn’t evoke a lot of enthusiasm. And though certainly not sexy, such areas often get overlooked in favor of the more interesting stories of the day. Such mundane areas make for some of the most fertile grounds for value hunters. Below you’ll see a list of industrial firms that beat -- or matched in one case -- analyst estimates in their most recent quarters, and the market’s treatment of these companies’ shares since their most recent earnings announcements.
Most Recent Quarter Estimated EPS
Most Recent Quarter Actual EPS
Price Change Since Earnings
|3M (NYSE: MMM )||$1.60||$1.60||(13.0%)|
|General Electric (NYSE: GE )||$0.32||$0.34||(20.0%)|
|Textron (NYSE: TXT )||$0.24||$0.29||(32.8%)|
|Tyco International (NYSE: TYC )||$0.73||$0.85||(11.3%)|
|Honeywell (NYSE: HON )||$0.98||$1.02||(20.3%)|
|Danaher (NYSE: DHR )||$0.67||$0.69||(17.2%)|
|Eaton (NYSE: ETN )||$0.95||$0.97||(22.3%)|
|Johnson Controls (NYSE: JCI )||$0.54||$0.56||(24.4%)|
|ABB (NYSE: ABB )||$0.37||$0.39||(18.8%)|
|Fluor (NYSE: FLR )||$0.81||$0.94||(3.2%)|
Source: Yahoo! Finance
The passing of the last earnings season served as a perfect window through which to examine the health of these sleepy giants. Indeed, each of the industrial companies above beat its most recent earnings estimates (except for 3M, which only matched expectations). Despite the bullish indicator that beating earnings should signify (in a very general way), these companies have largely been thrashed by the markets. In other words, there’s no reason these stocks should decline. However, because of the recent market malaise, these companies now cost investors as much as 33% percent less than on the date they announced the good news. And although we here at the Fool view the earnings games with appropriate skepticism, the fact that these companies seem to be doing at least well, despite a sluggish domestic economy, should prove extremely encouraging.
Foolish bottom line
Separating the market’s judgment of a company and its underlying fundamentals can prove challenging. However, the most successful investors see the two as distinctly disconnected. Such a perspective will help lead investors to stock temporarily disparaged by Mr. Market. Although I believe markets operate far from efficiently, they tend to behave sanely over the longer term. Investors that maintain their rationality and perspective stand to benefit when the market regains its senses.