Two Manufacturing Stocks for the Long Run

Manufacturing stocks have had a rough three months as concerns over a slowdown in worldwide growth have reduced earnings estimates for the sector and hit these stocks hard.

However, U.S. manufacturing has gone through a renaissance over the past decade. During this time span, U.S. manufacturers have reduced their cost structure faster than manufacturers in the rest of the world. Decreasing unionization has led to more flexibility and increasing productivity. Add in some of the lowest natural-gas costs in the world and an overall weaker dollar, and it adds up to a very powerful long-term narrative.

Several manufacturing stocks are currently selling at bargain prices and paying a nice dividend to boot. Here are two I like here.

Dover (DOV) manufactures a range of specialized products and components. The company operates in four segments: communication technologies, energy, engineered systems and printing and identification.

Here are four reasons Dover is a solid pick at $54 a share:

• It has an A-rated balance sheet and pays a dividend of 2.3%. It has raised its dividend payout at a 10% annual clip over the past half-decade.
• The company has done a good job of moving into higher-margin, less-capital-intensive businesses over the past few years. To this end, the company has made scores of small acquisitions over the last decade. Analysts expect between 6% to 9% revenue growth a year in fiscal 2012 and 2013.
• Dover has beat earnings estimates for 12 straight quarters. The stock also sports a forward price-to-earnings ratio of just over 10, a discount to its five-year average of 13.7.
• The stock was upgraded to Outperform in mid-July at William Blair, it has a median price target of $67 a share from the analysts who cover the stock, and Standard & Poor's has a Buy rating and a $72 price target on Dover.

Timken (TKR) manufactures anti-friction bearings and assemblies, alloy steels and mechanical power transmission systems.

Here are four reasons Timken is a long-term bargain at under $38 a share:

• After its recent selloff, insiders have increased their purchases. Two insiders bought almost $300,000 in new shares in late July.
• The company is cheap at just over 7x forward earnings, a steep discount to its five-year average of 17.9.
• The nine analysts who cover the stock have a median price target of $49 a share on Timken. The stock is selling at 6x operating cash flow, and it also yields 2.4%.
• I recently doubled my position in the stock, as it is approaching some long-term technical support.

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