If the economy is starting to recover, industrial and manufacturing activity should be picking up. If industrial business is recovering, earnings and revenue related to manufacturing processes like welding should start heating up. And when it comes to welding, one publicly traded company jumps to mind: Lincoln Electric (Nasdaq: LECO).

Unfortunately, the red-hot glow of a growing economy doesn't show up in Lincoln Electric's latest earnings report. At first glance, the bottom-line number shows an increase in earnings compared to last year. But when one-time adjustments get hit with a cutting torch, that bright arc quickly dims to a 27% earnings drop. The revenue numbers also show a gritty picture, with a 12% drop compared to the same quarter last year.

The news isn't all bad. Sales and operating earnings increased sequentially, and Lincoln Electric welded some strength to the balance sheet by growing cash and paying down debt over the course of 2009.

Foolish investors will want to know how Lincoln Electric stacks up against other companies doing the same type of business. CAPS screener helped identify several companies in the Industrial Goods sector that supply tools, equipment, or consumable stuff to construction and manufacturing businesses. Lincoln and six others are profiled below.

Company Name

P/E (TTM)

FWD P/E

Est. 5-year Growth Rate

Graftech International (NYSE: GTI)

80.1

9.0

10%

Lincoln Electric Holdings

46.6

15.7

25.7%

Simpson Manufacturing (NYSE: SSD)

99.1

21.0

15%

Kennametal (NYSE: KMT)

N/A

19.3

22.3%

Snap-On (NYSE: SNA)

18.2

12.0

10%

The Stanley Works (NYSE: SWK)

20.6

15.6

3%

*Source: Motley Fool quotes and Yahoo! Finance.
TTM = trailing 12 months.

The trailing-12-month P/E, compared to the 2010 P/E, shows that each of these companies is expected to tack on some earnings growth this year. Based on Lincoln Electric's earnings report, that growth hasn't kicked in yet. And that trend is consistent -- of the other six companies, only Stanley Works had higher earnings for the Dec. 2009 quarter than for the Dec. 2008 quarter when one-time factors were taken out.

Lincoln Electric and the others may be great companies, but their valuations seem high compared to growth estimates that are still, well, estimates. Cyclical companies typically trade at high P/E ratios when the economy is weak and earnings are dim. However, this Fool would like to see more recovery arcs and sparks before tacking one of these industrials to a portfolio.

What do you think? Are industrials a buy, or will the economy keep dragging on earnings? Add your thoughts in a comment below.

Related Foolishness:

Fool contributor Russ Krull does not have a beneficial interest in any company mentioned. Lincoln Electric Holdings is a Motley Fool Inside Value recommendation. The Fool owns shares of GrafTech International. Try any of our Foolish newsletter services free for 30 days.The Fool's disclosure policy welds integrity to transparency.