4 Low PE Industrial Stocks With Impressive Dividends

By Ankit Agrawal - September 13, 2012 | Tickers: CMI, ETN, GD, NOC | 0 Comments

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Recent stock market volatility and macro uncertainty has forced investors to look for stocks with high dividend. In my view, high dividend doesn’t necessarily imply the strength of an industry. I believe the true strength of industries lies in their ability to expand and create entirely new markets. Therefore, I expect following companies to outperform in the near term. According to me, these companies have strong long term growth prospects, near term potential catalysts and offer high dividend yield in their respective sectors:

General Dynamics (NYSE: GD) provides an array of products and services in business aviation, combat systems, armaments and munitions, commercial and military shipbuilding, and communications and information technology. Growth Drivers in near term: the company’s use of strong cash flow is impressive. The company has repurchased 9.1 million shares in 1H12. I believe the company increased focus on share repurchases will gain traction among investors. Additionally, company has announced the acquisition of IPWireless, I believe its an excellent bolt-on addition for IS&T business.

Cummins (NYSE: CMI) distributes, designs, and manufactures diesel engines, and electric power generation systems, and engine-related products, such as filtration and emissions solutions. Growth Drivers in near term: Navistar has announced that it will begin using Cummins’ 15L engines along with Cummins’ ICT after treatment. I believe Cummins’ engines will gain traction among customers as these engines already met EPA standards. Also, the company’s power segment has huge opportunities in emerging markets like India where people are facing inadequate electricity infrastructure.

Eaton Corporation (NYSE: ETN) Company is a global technology leader in diversified power management solutions that make electrical, hydraulic and mechanical power operate more efficiently, effectively, safely and sustainably. Eaton is experiencing unprecedented development and high economic growth in emerging markets. Growth Drivers in near term: Recently, company has closed its two hydraulic acquisition. I believe these acquisition will contribute substantially to the earnings. Also, the end of start-up cost at a new hydraulic point in China could further upside bottom line.

Northrop Grumman (NYSE: NOC) is a developer and manufacturer of advanced technology for the US military, NASA, foreign governments, various federal and state agencies, and selected commercial customers. Growth Drivers in near term: The company has announced the acquisition of Australian Cyber security Company M5 Network Security. I see this as a huge positive for the company given the visibility over cyber security market. For example, DOD is focusing on C4 related securities as they have aside ~10 billion from the budget specifically for these systems.

These low PE companies are cheap due to transitory reasons like market overreactions. Thus, provide a good entry point. Also, I believe mentioned potential growth drivers will prompt a rise in a stock's prices in the near term. These companies’ shareholder friendly activities (Dividends, Buybacks) should provide further support to the stock.

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