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Why Eaton Corporation Stock Fell 10% in December

By Reuben Gregg Brewer – Updated Apr 15, 2019 at 10:26PM

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The industrial giant got caught up in an increasingly dour economic mood on Wall Street, but you probably shouldn't.

What happened

The shares of globally diversified industrial giant Eaton Corporation (ETN 1.04%) fell 10.8% in December, according to data provided by S&P Global Market Intelligence. This result, however, includes a slight rebound: The stock was down as much as 15% at one point during the month. Even so, the weak end to 2018 capped a somewhat difficult year for Eaton, as it closed out the 12-month span down 13.1%. And from its October highs, the stock declined an even more worrying 22.4%.

Check out the latest Eaton earnings call transcript.

So what

Eaton's stock price rose just over 50% between January 2016 and December 2017, so a pullback in 2018 shouldn't be all that surprising. Even adding 2018 to the mix, to make a three-year span, the stock was still up nearly 32%. That, for reference, easily beat the S&P 500 index, which was up about 23% over the same period. So it's tough to get too upset about Eaton's December 2018 stock performance or the full-year result.

A man checking electrical industrial equipment

Image source: Getty Images.

The late-year pullback was related largely to worries about the health of the economy. As an industrial company, Eaton tends to be sensitive to the economic cycle. When times are good it prospers; when times aren't so good, its financial performance drops off. That's simply par for the course. And the last few months of 2018 witnessed increasing concerns about economic growth domestically and abroad. Investors reacted by selling Eaton stock.

Driving those concerns were things like global trade tensions, slowing economic growth in China, and worries that the Federal Reserve's continued interest rate hikes would depress U.S. growth. These fears are unlikely to end soon, suggesting that Eaton's stock will continue to be volatile for a while.

Now what

Eaton's December performance isn't a reason to head for the hills. It remains a well-run company with a highly diversified business backed by a solid balance sheet. In fact, with the yield at 3.8%, income investors might want to put the stock on their watch lists. This could be a good entry point for a company with a long history of rewarding investors with regular dividend hikes. Note, too, that Eaton continues to adjust to the world around it, and in 2018 it introduced a new division focused on electric vehicles. This is not a company that thinks in months; it thinks in decades. Most investors should take a similar approach.

Reuben Gregg Brewer owns shares of Eaton. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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