Depending on your attitude, sitting and looking at a screen with a decidedly red bias as I have done the last couple of days can be interpreted in one of two ways. It can be depressing, or you can see it as an opportunity.
If you believe, as do I, that a long-term bull market is still intact, then you will tend toward the latter view. When these dips come it can be a good time to look for long-term investments with good growth prospects that are coming under pressure. That certainly describes Emerson Electric (EMR).
As you can see, EMR has been somewhat volatile of late and is coming off of a big drop at the beginning of last month. That fall was the result of a slight earnings miss and the fact that the company is going ahead with some asset sales. The most notable is their network power division. Nobody likes to see a miss or a company that is shrinking. But the reaction to that news was overdone, as evidenced by the subsequent recovery of the stock.
This weakness over the last couple of days, however, has set EMR up for those looking for a potential long-term trade with a fairly tight limit to the downside. As I was writing this column, the stock was trading at around $64. That's about 5 percent away from the 52-week low at $60.85, a logical level for a stop loss. All of that is fine and dandy, but it still wouldn't justify buying into a company that was struggling, if that were the case. Fortunately, it isn't.
What Emerson appears to be doing by selling some assets is freeing up resources to deploy in the fastest growing area of their business -- their process management division. More specifically, that includes that division's business in the oil and gas industry.
If you have been paying attention at all you will know that industry is growing quickly here in the U.S. As the hydraulic fracturing technology that has enabled that boom is exported, the rest of the world can be expected to follow suit.
It is little wonder then that Emerson's management, while reporting sustained five to six percent order growth in that earnings release, expressed a belief that that number will grow in the coming months. On the surface, EMR doesn't look like a bargain with a forward price-to-earnings ratio of 15.84. But consider that the growth estimates that form the basis of that number are currently running at around four and a half percent. Then, it isn't hard to see significant upside for the stock.
Factor in a dividend that equates to a yield of nearly three percent and which has a long history of growing. That makes ENR look like it should be a part of most people's long-term, core holdings. Thanks to the recent weakness, the stock is available at a decent level. Maybe that sea of red isn't such a bad thing after all.