A Fresh Look at Four Earlier Recommendations

 | May 24, 2013 | 9:00 AM EDT  | Comments
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Stock quotes in this article:

etn

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tel

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slb

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schw

We are updating and affirming some previous recommendations made at the start of the year. While we're pleased these stocks are trading higher, we still maintain a strong, going-forward conviction and look for additional gains in all stocks discussed below.

In some cases, the 2013 stock gains were overdue and primarily reflect the market catching up to the business. In other cases, recent business progress warranted the stock gains achieved so far this year. Finally, in other instances, gains this year have been less than in the overall market and we believe the majority of future gains are yet to come.

These four previously recommended stocks on Dec. 28, reflect all of the situations referred to above. For the reasons that follow, each still warrants inclusion in your portfolio, and if not owned, warrants serious consideration for investment:

Eaton (ETN) had a solid move from $53.09 to $67.59. The fundamentals continue to improve via the peer group on a positive business mix shift to more global electrical products after the recent Cooper Industries acquisition. This more stable mix shift and better operations execution has enabled Eaton to reiterate 2013's earnings outlook and to feel more comfortable with the expected positive merger synergies in 2014. Eaton's profile is of a company with solid business progress that warrants further stock market gains.   

TE Connectivity (TEL) also had a strong gain from $36.34 to $45.50. TE Connectivity reported a better than expected quarter and outlook based on continued North American and emerging market auto growth, favorable margin trends as a result of positive restructuring actions and aggressive dividend and share buyback programs. It is increasingly likely that the company will surprise to the upside in 2013 and we look at it making solid business progress that warrants further stock market gains. 

Schlumberger (SLB) has been the one name that has underperformed the market from $67.70 to $74.37.  The company reported a solid first quarter and affirmed the year on a continued pick-up in offshore and international drilling activity. Earnings are projected to grow at a double digit percentage pace for the next several years. The valuation levels are still attractive at 15 times 2013's EPS and 13 times 2014's. Schlumberger has had gains that have been less than the overall market and with the majority of its gains yet to come.   

Charles Schwab (SCHW) has had an impressive move from $14.09 to $18.78. While its earnings continue to struggle on weak net interest margin trends, subpar trading activity and higher expense levels, Schwab has nevertheless continued to attract a record amount of new account and asset flows. 

The stage for better operating trends is set and it's a question of when and not if earnings will move sharply higher. Several analysts believe Schwab can earn close to $2 per share over the next several years. We believe the eventual rise in interest rates could be the primary catalyst to additional stock price gains.

So, while all of the above names have had nice to impressive gains so far this year, we are comfortable adding to them all in the current pull back, with the expectation of seeing additional gains by the end of the year.

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