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3 Undervalued Machinery Stocks to Consider as Factory Output Rises

James Dennin, Kapitall: Factory output beat analyst estimates worldwide. So we looked for machinery stocks that might be undervalued. 

In an important sign that the American economy will have a strong 2014, US factory output beat analyst estimates for a second straight month, climbing 0.6%. Total industrial output is up more than 1%, although part of that has to do utilities that benefit from falling temperatures. 

Read more from Kapitall: 5 Undervalued Green Tech Stocks to Power Up Value Investors

Industrial output also increased significantly in Europe, where factory orders have climbed to a 31 month high led by manufacturing power-house Germany. 

And in a sign of optimism, business inventories have been climbing as well, indicating that companies are getting more optimistic about their ability to sell goods. For investors with concerns about valuations in the stock market – signs of growing sales and revenues will be paramount.

Investing ideas  

We decided to run a screen to find some stocks that might benefit from busier American and European factories. But we were also concerned about high valuations. So to build the screen, we wanted to look at industry, valuation, and projected earnings per share (EPS) growth. 

To do that we began with a universe of diversified machinery stocks like General Electric (GE) or Siemens (SI). These companies work in a number of different sectors, so they're poised to benefit from growing productivity as a whole. Then we narrowed the list by looking for forward price-to-equity ratios (Forward P/E) below 15, and projected EPS growth next year of at least 10%.

Just three machinery stocks remained on our list. 

Click on the interactive chart to view analyst ratings over time.

Do you see investing opportunities in these diversified machinery stocks? Use the list below to begin your analysis. 

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