Caterpillar is down significantly from its recent high on fears of a slowing economy. Crane and Deere have retreated from their peaks despite expectations for all-time record earnings per share (EPS) this year. In each case, the current P/E is at a large discount to the company's historical average P/E.
These three companies possess strong balance sheets and pay secure dividends. They have lengthy histories of steady payout increases. Each has proven to be a long-term wealth creator. In Price Growth Persistence, this trio outperformed 75% to 90% of the 1,700 stocks covered in Value Line’s main research universe over the past decade. (CR, DE and CAT outperformed 75%, 85% and 90% of Value Line's stock universe, respectively. See chart below.)
It is hard to believe you can buy great companies like these at bargain prices. CAT now trades close to its two-year low while yielding 2.58%. Deere, following a record-setting year, is presently available at the same price as it was almost one year ago.
Crane has backed off from its high of $56.99 in March, and now trades for not much above its April 2012 level. It closed at $52.34 today (April 22, 2013).
Takeaway: Excellent growth is rewarded over time to patient investors. In spite of the major indexes being close to their highs, there are still solid companies trading at attractive prices.
The last decade included some horrific economic and market-related periods. The crash of 2008, the debt-ceiling crisis, and the near bankruptcy of most European banks, are all included in the 10-year shareholder returns shown.
Over-trading in response to macro-economic events probably cost many holders of these companies much more than just sitting tight.
Buying on good news doesn't mean the stock won't go down. Selling pessimism often locks in losses.
Stock pundits are warning that these stocks are value traps and should be avoided until global growth picks up again. My guess is that by then, these stocks will be trading at higher prices.
You can only buy the best stocks at bargain prices when others are willing to part with their shares for lower prices. Every trade has a buyer and a seller. When you hear that everybody is getting out of industrials, ask yourself why you are not taking the other side of that trade.
CAT and DE are present holdings in Market Shadows' Virtual Value Portfolio and the Virtual Put Selling Portfolio.
Disclosure: Long CAT, Long DE