Parker-Hannifin Corporation (PH), Kennametal Inc. (KMT): How to Play an Improving Global PMI

While management has had to revise its near-term outlook to the downside given the sluggish demand environment, the company has executed reasonably well given the lack of visibility, and there is likely upside to longer term estimates on the back of improving global economic activity and its recent acquisition. For those who are not following the company closely, the company recently acquired a tungsten processing company in Bolivia at a purchase price of $50 million. This price will be paid over multiple years. However, the acquisition will be immediately accretive to the earnings.

Another interesting point to be noted is that the company’s management has recently been extremely bullish on the order growth in the Industrial segment, which largely comprises of orders from the Aerospace world. Also, there are good signs developing in US and Asia auto markets which would help the company to achieve growth in earnings.

That said, the company’s stock price has lagged on the recognition that it has significant leverage to the mining industry; this could continue to weigh on the stock in the near term.

Final word

A potential acceleration in the PMI has been a sign of hope for many. If (and a big IF it is) this happens, Parker-Hannifin Corporation (NYSE:PH) and Kennametal Inc. (NYSE:KMT) are evaluated to be the best bets of the lot. And mind you this is not the only reason why Parker-Hannifin Corporation (NYSE:PH) and Kennametal Inc. (NYSE:KMT) might be buys – Parker has a solid management team that has handled the company in troubled times and is expected to handle it well in the future. On the other hand, Kennametal Inc. (NYSE:KMT) is witnessing improvement in some of its end markets that is helping it to offset the beating that it has got from the mining exposure.

The article How to Play an Improving Global PMI originally appeared on Fool.com and is written by Zain Abbas.

Zain Abbas has no position in any stocks mentioned. The Motley Fool recommends Kennametal. Zain is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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