A cyclical play - Actuant Corp. (ATU)

The state of the US economy is a common topic of debate. Don’t worry, that won’t be the topic of this post. For now, the economy is flying and there are several stocks that will go up as a result. That is a pretty simple reason to invest in them, but I will go into more detail. ATU is the one that has caught my eye as being better than the rest. Not a better company, but a better stock. This company provides industrial tools, electrical tools and engineering solutions. Its customers are oil companies, aerospace companies and industrial machinery companies. These are three industries that are booming and they will be sending money ATU’s way.

Now to the important stuff: ATU has a market cap of approx. 1.6B. It is trading at 17.5x earnings and 1.5x sales. The company also has a ROE of 46%. ATU has shown annualized EPS growth over 20% for the last 5 years, which leads me to believe that the current multiple is factoring in slow growth ahead. ATU management has been very successful in finding growth internally and through acquisitions and I see no reason to believe that in the current global expansion they won’t be able to succeed.

This stock is not for weak holders and will fall hard in the event of a major slowdown. It is important to monitor it closely and be able to sell it at a loss if there are signs that it is breaking apart. That being said, if the economy stays strong, this stock should yield major returns through multiple expansion and major earnings growth. If you are looking for a safer play, Rockwell Automation (ROK) is a larger cap play on the industrial economy with very strong fundamentals.