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Goldman's 6 Best Industrial Stocks for 2011

4. Eaton (ETN - Get Report) is a power-management company, building electrical distribution and control products as well as filtration and hydraulic systems and powertrain systems, clutches and brakes.

Eaton has a market value of $18 billion. Its fourth-quarter adjusted earnings stretched 25% to $1.69, outperforming researchers' consensus estimate by 1.1%, a narrow beat. Its sales, up 17%, beat the consensus by 0.9%. It seems as though analysts have a grasp on Eaton's growth trajectory, given precise quarterly forecasts. Goldman disagrees.

Calling the quarter "unspectacular", it believes that analysts will be forced to upwardly revise their earnings estimates in the weeks ahead, boosting Eaton's stock. Among the most bullish on the Cleveland-based industrial company, Goldman even sees significant upside to its own $132 price target. Eaton offers "late-cycle exposure to non-residential construction, energy and aerospace markets", so is ideally-suited to outperform as the economic cycle matures. Currently, nine analysts rate Eaton's stock "buy" and 11 rank it "hold." No analysts rate the shares "sell."

Goldman offers the highest target on Wall Street. Eaton is attractive based on its valuation. The stock has advanced 78% in the past 12 months, but costs just 12-times forward earnings, 2.5-times book value and 1.3-times sales. Those multiples reflect discounts of 32%, 36% and 19% to industry averages. Eaton pays a quarterly dividend of 68 cents, equal to a yield of 2.5% and a safe payout ratio of 43%. The dividend has grown 17% in 12 months. It has expanded 9.3% and 13%, annually, over a three- and five-year span.

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