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4 Manufacturing Stocks to Watch

Kennametal is a leading supplier of tooling, engineered components and advanced materials used in production processes. The company operates in two segments: metalworking solutions and services group (MSSG) and advanced materials solutions group (AMSG). About 46% of analysts covering the stock rate it a buy while the remaining analysts rate it a hold. There are no sell ratings on the stock. On average, analysts polled by Bloomberg believe the stock has potential upside of 14.4%.

Net earnings for the company's fiscal second quarter, which ended Dec. 31, were $43.5 million, or 52 cents per share, compared with $6 million, or 7 cents per share in the earlier year. The improvement was attributable to the global economic recovery and rising demand from emerging economies. Industrial sales were up 33%, while growth in the infrastructure segment was 19%. Kennametal attained record operating margin levels in the December quarter.

Nearly half of Kennametal's business operations and revenue are in Germany, which is a far better performing economy than the other European nations, according to industry analysts. For the third quarter of 2010, Germany reported 3.9% year-over-year growth in its GDP (real terms), compared with 1.9% growth in the eurozone. The recent cut in factories to 46 facilities from the earlier 60 has boosted profit margins.

Heading into 2011, full-year earnings are forecast between $2.50 and $2.65 per share, compared to the earlier estimate of $2.25 and $2.45 per share. The guidance for organic sales growth is projected between 21% and 24% from the previous range of 19% to 21%. The company has declared a regular quarterly cash dividend of 12 cents per share, payable Feb. 23.

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