If ever a company were in the sweet spot, it's Emerson Electric (NYSE:EMR).
Business is strong across almost every product line, and companies have ample cash to spend on equipment replacements, upgrades, and expansions. And with management keeping a firm hand on the rudder, this growth opportunity is not being wasted or watered down.
Sales were up 15% this quarter, and underlying growth (akin to organic growth) was once again up 14%. That's impressive growth for a company that's annualizing toward about $20 billion in revenue in competitive markets that harbor rivals like General Electric (NYSE:GE), Dover (NYSE:DOV), ITT (NYSE:ITT), and Danaher (NYSE:DHR).
More impressive still are the ongoing improvements in margins and returns on capital. As such, I think it's certainly fair to say that Emerson is making hay while this sunny economic cycle shines on.
I also like that not all of the company's units are really in the prime of their economic lives. While the process management and industrial automation businesses are growing on boom times in energy and mining/metal markets (witness orders from BP (NYSE:BP) and Suncor (NYSE:SU)), units like network power and appliance/tools could still see improving fundamentals as well.
Here's the danger, though. I'm starting to hear some of that "It's different this time" chatter with industrial stocks like Emerson -- as if interest rates and economic cycles no longer matter. If you want to take today's cash flow and forecast uninterrupted mid-teens growth for a decade or two out, be my guest. But I think you could be in for a nasty shock when an inevitable economic slowdown arrives.
I have no delusions that Emerson will stop going up just because I think it's expensive. And quite frankly, if I owned it, I wouldn't be selling it (though I might consider some protective stop-loss orders). But investors looking to make money from late-cycle industrial plays might want to look beyond for Emerson for some better values.
For more industrious Foolishness:
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
