Eaton Corporation, PLC (ETN), 3M Co (MMM), Caterpillar Inc. (CAT): Conglomerate Stocks That Will Drive Your Returns in 2013

Page 1 of 2

Investing in conglomerate stocks presents a very different and unique risk/reward opportunity. They maintain a diversified portfolio of companies that provide a good mix of growth and return, while at the same time they mitigate the risk of overall failure.

Continuous acquisition, diversification, disinvestment, and joint ventures are traits of big conglomerates. In this article, I have discussed three large conglomerates that have, recently, either completed an acquisition, or have entered into a joint venture. Let’s analyze these stocks in detail and figure out if there exists an investing opportunity.

Eaton logo

Eaton Corporation, PLC (NYSE:ETN)

With the completion of the acquisition of Cooper Industries in December 2012, Eaton’s stock has maintained its momentum in the market. The acquisition of Cooper Industries has brought the company to a stage where 60% of its revenue will be derived from its electrical section, and has transformed the company into a prominent electrical equipment manufacturer.

The acquisition was completed earlier-than-expected, and therefore, in 2013 it should result in an accretion of $0.15 to the EPS. This is because of better earnings, quicker synergy realization, and lower interest expenses and inventory step-up charges. Going forward, the company will re-segment its electrical, trucks, and automotive line of operations, and will replace them with electrical products, systems, services, and vehicles segment.

The company’s fourth-quarter 2012 results were positive, but recorded low growth as compared to last year (4.1% v/s 9%) because of high acquisition and transaction charges ($13 billion) incurred for acquiring Cooper Industries.

The results were mainly driven by its electrical equipment section, despite low revenue from its hydraulics and automotive segments. Electrical Americas was among the top operations of the company, reporting sales of $1.154 billion, up 3% and benefiting from a strong recovery in the U.S. construction market. Electrical NA orders reported a robust growth of 11%, nurturing the overall quarter’s profit. This growth was achieved from local as well as international markets, and it is estimated to increase in 2013 too.

3M Co. (NYSE:MMM)

3M successfully invested $900 million in acquisitions in 2012 with the completion of the acquisition of Ceradyne. The company paid about $670 million for Ceradyne. It deals in ceramics used in defense, aerospace, and energy industries. The acquisition allows 3M to prepare customized ceramic solutions. It will join the advanced materials division, which specializes in solutions and materials used in tough manufacturing conditions.

3M Co. (NYSE:MMM) also plans to make further acquisitions in 2013. Although, according to the indications given, the investments should be less in number but more in value. According to the guidance, it expects to invest about $1.5 billion in acquisitions in 2013.

The company’s newly declared share buyback plan of $7.5 billion shows its commitment towards repaying investors. Two-thirds of this plan represents incremental buyback authorization. The new buyback plan indicates a potentially higher pace of buybacks at around $3 billion/year. Capital allocation was one of the key concerns for 3M Co. (NYSE:MMM) investors, and incremental buyback is clearly a good step in this direction.Additionally, 3M has also increased its quarterly dividend 7.6% year-over-year, which gives a boost to the company’s commitment towards returning cash to investors.

The acquisition capability and plans, along with a robust buyback plan, should help the company improve its profitability in the future, and should increase returns to investors.

Caterpillar Inc. (NYSE:CAT)

Caterpillar Inc. (NYSE:CAT) reported a soft start for the year 2013, as its January machines retail sales and power system shipments were down 4% and 7%, respectively. The weaker performance of these segments followed weak December 2012 sales. It didn’t come as a surprise to investors when the company guided for a weak first quarter, with sales down about 13% year-over-year.

Weakness in guidance was mainly because of the inventory reduction by dealers due to the slowdown in retail sales. Although, growth in every region of the company declined, the North American and Asia-Pacific regions particularly saw steep decline in retail sales at 11% and 12%, respectively. This, coupled with some disinvestments, has led to a decline in the stock price by around 20% in the last one year.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 9 Most Dangerous Countries for Tourists to Visit

Reign of Terror: The 10 Most Ruthless Politicians in History

On the Move: The 10 Fastest Growing Businesses in 2015

Fast Money: The 10 Highest Paying Fast Food Restaurants

Mixing It Up: The 14 Best Music Mashups of 2014

Rito Pls Buff: The 10 Least Played Champions in LoL Season 4

10 Covers of Popular Songs that are Better than the Originals

Must See TV: The 9 Most Anticipated Shows of 2015

The 15 Biggest Box Office Bombs of All Time

10 Things The World Can’t Stand About Americans

Picture Perfect: The 6 Smartphones with the Best Cameras

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!