Three Intriguing Industrials

NEW YORK ( TheStreet) -- It was a tale of two markets in 2010 for investors in U.S. industrial companies. The first six months of the year were characterized by volatility as investors worried about the possibility of a double-dip recession. Industrials rallied in the second half, however, as evidence of a broad and sustained global economic recovery mounted.

"Absent an unforeseen upset, we expect the U.S. will experience a self-sustaining, albeit slower than normal, recovery in 2011 that should continue to favor specific industrial companies," says Rob McIver, co-manager of the Jensen Portfolio ( JENSX).

"In keeping with our forecast of economic recovery, the industrial sector should be one of the beneficiaries in the upturn which is why industrial stocks -- especially construction and mining equipment makers -- are among the largest holdings in our portfolio," says Herb Chen, portfolio manager of the Huntington Growth Fund ( HGWIX) .

TheStreet searched for 2011's most intriguing industrial stocks with McIver and Chen.

Emerson Electric ( EMR)

Incorporated in 1890, Emerson designs and manufactures a broad range of electrical products and systems for the commercial, industrial and consumer markets, generating nearly $21 billion in sales last fiscal year. Foreign sales make up more than 57% of revenue. A cash-generating machine, the company uses its cash to make acquisitions, buy back shares and increase its dividend, which it has done for 54 consecutive years. The stock currently yields 2.4%.

"As a total solutions provider, the company plays an important role in helping its worldwide customers become more energy efficient. Over 75% of Emerson's business is tied to infrastructure build-out around the globe and we believe that demand from both developed and developing economies will continue to benefit the company," says Jensen's McIver.

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Caterpillar ( CAT)

With 2009 sales and revenue of $32.396 billion, Caterpillar is the world's leading manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives. The company also is a leading services provider through Caterpillar Financial Services, Caterpillar Remanufacturing Services, Caterpillar Logistics Services and Progress Rail Services.

Most importantly for investors perhaps, is the fact that Caterpillar was the leading stock in the Dow Jones Industrial Average in 2010, rising 64%. And Chen expects another strong year in 2011.

"We expect Caterpillar to deliver robust earnings growth into 2011, driven by the construction sector recovery. Moreover, Caterpillar's recent acquisition of Bucyrus gives it presence in mining growth, specifically in China," says Chen. "The combination of construction and mining equipment sales should contribute to Caterpillar's consensus long-term growth of 12.75%."

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United Technologies ( UTX)

United Technologies generates $53 billion in revenue from its diversified mix of businesses across six divisions. UTX benefits from urbanization and infrastructure build in developing countries through its Otis and Carrier units; it capitalizes on commercial and military aircraft needs through Pratt & Whitney, Hamilton Sundstrand and Sikorsky.

About 46% of the company's revenue is generated outside the U.S. where the company has leading positions in the majority of its markets. The stock currently yields 2.2% but that's not all that McIver likes about it.

"United Technologies continuously works to improve its margins through ongoing cost enhancement programs and uses its formidable cash generation to target acquisition spend of $2 billion per year, share repurchases of an additional $2 billion in 2010 and dividend increases," says McIver.

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>To see these stocks in action, visit the Three Intriguing Industrials portfolio on Stockpickr.


Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.