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Dover Rewards the Street for Its Confidence

NEW YORK ( TheStreet) -- Whether too high or too low, the Street gets more than its share of criticism for how it prices certain stocks. But when looking at shares of industrial conglomerate Dover (DOV - Get Report), which are up 40% since April, I believe analysts deserve some credit for what I once regarded as misguided optimism.

Given Dover's breadth of end-market exposure, which includes smartphones, commercial refrigerators, gas pumps and so on, I wasn't especially high on the company following its sluggish April quarter. I say "sluggish" here even though I know full well the company posted inline results. But when compared to, say, General Electric (GE), which is equally well-diversified, I've never been impressed with Dover's organic growth. Not to mention, the stock has always been -- in my opinion -- expensive.

Even so, the company's management -- which, in fairness, has posted solid book-to-bill performance --  always remained optimistic, promising a strong second-half recovery. The Street, meanwhile, having always been in love with the stock, didn't need much convincing. Since the April conference call, shares of Dover, which (then) traded around $67 per share, are now resting near their 52-week high at around $93. While these shares may not be in the bargain bin today, following a strong third quarter $100 per share is a given.

Dover's management, which I have to now regard as highly underrated, had advised investors earlier in the year that it would be the drilling business and improvements in refrigeration that would lead the second-half recovery. With revenue advancing 7% year-over-year to $2.3 billion, management was right on target --  growth was led primarily by drilling and downstream markets within energy business.

Refrigeration/food equipment markets were also strong. Given the frequency with which Dover does deals, it was especially encouraging that Dover posted 3% organic growth, which continues to outperformed rivals including Danaher (DHR) and Eaton (ETN). In this sector, there is nothing that analysts love to scrutinize more.

Organic growth, which measures a company's operational performance using only internal resources and excluding events like acquisitions, is an important metric used to gauge performances of companies that are so well diversified. It's rare that companies like Dover can enter so many markets without going the merger and acquisitions route.

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