10 Industrial Stocks Poised for a Rebound

BOSTON (TheStreet) -- There are clear signs that demand for industrial products is building as the economy fitfully recovers.

It's in this phase that long-term investors might consider stocks of their suppliers. Those are the unsung companies that provide the machine tools, parts and components that manufacturers need to produce heavy machinery, trucks, bulldozers and aircraft in anticipation that this highly cyclical industry will finally bloom again.

That's likely already in process as key industrial sector signals have been positive recently. For example, the Institute for Supply Management's March factory survey found that new orders and backlogs were still growing last month and their inventories of unsold goods weren't building, which means that any increase in demand will have to come from new production by the manufacturers.

As a result, their needs will trickle down to orders for suppliers.

What's more the Federal Reserve reported that first-quarter factory output to rise at a hefty annual rate of 10.4% and that manufacturing output moved up at an annual rate of 8.3%.

Standard & Poor's says its outlook for the industrial machinery industry remains "positive, based on various industrial activity metrics that indicate manufacturing and machinery usage continue to expand, and our belief that stronger growth in emerging economies will likely drive the rebound in global markets."

But on a cautious note, S&P Capital IQ analyst Kevin Kirkeby said in a recent report that the industrial-machinery sector, which has been resurgent since 2010 helped by worldwide stimulus spending programs and other measures aimed at freeing up the capital markets, slowed in the first quarter due to "increased risk aversion" by companies considering new orders of capital equipment. Their concerns were over the resolution of the sovereign debt crisis in Europe and signs of slowing economic growth in China.

As of April 13, S&P's industrial machinery stock index was up 12.4%, versus the S&P 500's 9% gain.

Here are 10 stocks of companies that are suppliers to the industrial-machinery sector ranked in inverse order of the number of analyst "buy" signals:

10. Sandvik ( SDVKY)

Company profile: Sandvik, with a market value of $17 billion, is an international producer of highly engineered tools and products for the global industrial market. It has five business areas: mining, machining tools, materials technology, construction, and venture.

Dividend Yield: 2.34%

Investor takeaway: Its shares are up 12.3% this year and have a three-year, average annual return of 27%. The Sweden-based company doesn't get U.S. analyst coverage.

9. Dover ( DOV)

Company profile: Dover, with a market value of $11 billion, is an industrial conglomerate consisting of nearly 40 separate businesses. It has four segments: industrial products, engineered systems, fluid management, and electronic technologies.

Dividend Yield: 2.06%

Investor takeaway: Its shares are up 5.7% this year and have a three-year, average annual return of 26%. Analysts give its shares four "buy" ratings, four "buy/holds," four "holds," one "weak hold," and one "sell," according to a survey of analysts by S&P. Analysts expect it to earn $4.90 per share in its current fiscal year and that that will grow by 12% to $5.47 per share next year. S&P has it rated "buy" with a $72 price target, which is an 18% premium to its current price.

8. Kennametal ( KMT)

Company profile: Kennametal, with a market value of $3.6 billion, produces metal-cutting tools and tooling systems used in the heavy equipment, aerospace, and automotive industries.

Dividend Yield: 1.28%

Investor takeaway: Its shares are up 22% this year and have a three-year, average annual return of 30%. Analysts give its shares six "buy" ratings, three "buy/holds," five "holds," and one "weak hold," according to a survey of analysts by S&P.

7. Parker Hannifin ( PH)

Company profile: Parker Hannifin, with a market value of $12 billion, is a diversified manufacturer of motion and control components and systems operating in several segments: industrials, aerospace, and climate and controls. Its products are used in everything from jet engines to autos, trucks and utility turbines.

Dividend Yield: 1.89%

Investor takeaway: Its shares are up 9% this year and have a three-year, average annual return of 29%. Analysts give its shares six "buy" ratings, four "buy/holds," and eight "holds," according to a survey of analysts by S&P. S&P has it rated "buy" with a $100 price target, a 25% premium to the current price.

6. Illinois Tool Works ( ITW)

Company profile: Illinois Tool, with a market value of $27 billion, is a diversified manufacturer with four business segments: industrial packaging, power systems and electronics, transportation, and construction products.

Dividend Yield: 2.58%

Investor takeaway: Its shares are up 20.5% this year and have a three-year, average annual return of 23%. Analysts give its shares seven "buy" ratings, one "buy/hold," 12 "holds," and one "weak hold," according to a survey of analysts by S&P. Its earnings outlook is excellent as analysts expect it will earn $4.14 per share this year and $4.58 in 2013, an 11% increase. Northern Trust Investments owns 9.8% of its shares, about double that of the next largest shareholder.

5. Stanley Black & Decker ( SWK)

Company profile: Stanley, with a market value of $13 billion, is an international provider of hand tools, power tools and related accessories and systems. It was created by the March 2010 merger of Stanley Works and Black & Decker.

Dividend Yield: 2.14%

Investor takeaway: Its shares are up 17% this year and have a three-year, average annual return of 36%. Analysts give its shares seven "buy" ratings, three "buy/holds," and five "holds," according to a survey of analysts by S&P. S&P has it rated "buy" with an $83 price target, which is an 8% premium to its current price. S&P analysts say: "We believe it is well-positioned to gain market share in its three customer markets as the global economy recovers and the company benefits from recent acquisitions."

4. Emerson Electric ( EMR)

Company profile: Emerson, with a market value of $38 billion, operates in five business segments: process management, industrial automation, network power, climate technologies, and tools and storage. Its products include: motors, drives, valves, switches, test equipment, air conditioning compressors, electric tools, and home storage solutions.

Dividend Yield: 3.10%

Investor takeaway: Its shares are up 9.4% this year and have a three-year, average annual return of 18%. Analysts give its shares eight "buy" ratings, four "buy/holds," and 13 "holds," according to a survey of analysts by S&P. S&P, which has it rated "hold," says "Emerson is well-positioned to benefit from any strengthening in the global economy, particularly from spending on infrastructure." However, orders from Europe have been particularly slow over the past few quarters.

3. Timken ( TKR)

Company profile: Timken, with a market value of $5 billion, sells a broad range of products for friction management and power transmission, as well as alloy steels and other steel components. Is customers are in the industrial machinery, trucks and automobiles, aerospace and defense, and energy industries.

Dividend Yield: 1.83%

Investor takeaway: Its shares are up 30.5% this year and have a three-year, average annual return of 46%. Analysts give its shares eight "buy" ratings, two "buy/holds," and one "hold," according to a survey of analysts by S&P.

2. Eaton ( ETN)

Company profile: Eaton, with a market value of $16 billion, makes a variety of power management products it sells to industrial customers, including electrical systems, hydraulics components, aerospace fuel systems, and truck and auto powertrain systems.

Dividend Yield: 3.24%

Investor takeaway: Its shares are up 9.9% this year and have a three-year, average annual return of 32%. Analysts give its shares 11 "buy" ratings, four "buy/holds," six "holds," and one "sell," according to a survey of analysts by S&P. S&P, which has it rated "hold," on valuation concerns and the continued economic weakness in Europe.

1. Danaher ( DHR)

Company profile: Danaher, with a market value of $37 billion, is a manufacturer of a wide range of industrial products ranging from hand tools to process and environmental controls. The company has five reporting segments: life sciences and diagnostics, test and measurement, industrial technologies, environmental, and dental. The hand-tool division makes Sears' Craftsman and Matco brand tools.

Dividend Yield: 0.18%

Investor takeaway: Its shares are up 16% this year and have a three-year, average annual return of 26%. Analysts give its shares 15 "buy" ratings, five "buy/holds," and five "holds," according to a survey of analysts by S&P. T. Rowe Price (9.6%) and Fidelity (5.3%) were its two biggest shareholders at year-end.

>>To see these stocks in action, visit the 10 Industrial Stocks Poised for a Rebound portfolio on Stockpickr.

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

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