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Goldman's 6 Best Industrial Stocks for 2011

BOSTON (TheStreet) -- The average industrial stock in the S&P 500 has gained 38% in 12 months, more than twice the rise of the broader market. Industrial stocks are still favored by analysts, ranking third of 11 industry groups, because appetite for resources and infrastructure in emerging markets is amplifying demand. Goldman Sachs named the following six industrial stocks to its 2011 Conviction Buy List, with one as a short recommendation. Below, they are ordered by predicted return, from plenty to most.

6. Dover (DOV) manufactures industrial equipment, including winches, demolition machinery attachments, hydraulic parts and powertrain systems.

As Goldman notes, Dover is no longer a contrarian story. Its stock has surged 61% in 12 months and delivered annualized gains of 17% over a three-year span. It is an analyst favorite, receiving nine "buy" recommendations and three "hold" calls. No researchers advise selling its stock. Dover yields 1.7%. The dividend has grown 12% and 10%, annually, over three- and five-year spans.

Despite the solid run over the past year, Dover's stock is comparatively inexpensive, selling for 14-times forward earnings, 2.7-times book value and 13-times cash flow, 25%, 30% and 18% machinery-industry discounts. Goldman expects the stock to advance 13% in the next 12 months to $75. Dover's fourth-quarter adjusted earnings increased 59% to 94 cents, beating analysts' consensus forecast by 15%. Dover's sales exceeded the consensus target by 6.8%. In reaction, Goldman boosted its 2011 earnings estimate to $4.30 and its 2012 earnings target to $4.60.

Bears are concerned about Dover's electronic technology segment, which sells products ranging from specialty audio components to microwave filters. But, management boosted its guidance for the segment in 2011. Goldman is optimistic about "structural change directed by new management in the areas of cost management and capital allocation." Dover's quarterly operating margin rose from 12% to 14%. Also, Dover offers "late-cycle exposure to oil and gas." The fluid management division sells components to exploration, production, distribution and refinery companies.

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