It's the Clint Eastwood rally

Durables makers have led this market higher and could make even more hay if recent trends hold up.

By MoneyShow.com Feb 7, 2012 12:32PM

Image: Road (© Frank Whitney/Brand X/Corbis)By Igor Greenwald, MoneyShow.com


Clint Eastwood and Chrysler aren't the only ones who think the world "is going to hear the roar of our engines" very soon.


Strong spending on durable goods by businesses and consumers has been perhaps the most encouraging economic trend of all, while the turbo-charged performance of related shares has added lots of mileage to the market rally.


People don't make multi-year commitments to a car, crane, or warehouse unless the medium-term future looks reasonably secure . . . or, equally relevant to our age, it's time to replace something irredeemably worn out. One or the other of these conditions seems to pertain frequently nowadays, as evidenced by the strong back-to-back gains in durable-goods orders.


Durables manufacturing accounted for 20% of January's strong gain in payrolls, and the Bureau of Labor Statistics noted that such industries have added 418,000 jobs over the last two years.


More importantly, there's no sign of a let-up in the near term. Consumers are more disposed to buy cars and trucks, furniture, appliances, and even homes than a year ago. Architects increasingly expect a pick-up in non-residential construction.


Caterpillar's (CAT) 25% surge at the forefront of the Dow's rally this year has been more than matched by smaller-cap names more geared to a domestic recovery. Heavy-equipment lessor United Rentals (URI) remains the strongest mid-cap stock in technical ratings compiled by StockCharts.com.


Just five spots below URI is leading RV, bus, and ambulance maker Thor (THO), up 45% since Dec. 14, and jumping 4% to a new eight-month high on Friday after forecasting unexpectedly strong RV sales over the next six months.


The single best-performing small-cap play of late, based on the same StockCharts.com formula, has been snowmobile and all-terrain vehicle maker Arctic Cat (ACAT), which is up nearly 50% over the last two weeks, helped by a beat-and-raise earnings report.


And then there's long-time loser Whirlpool (WHR), which kicked off February with a 14% single-day pop after providing a heated annual outlook at odds with the latest profit miss.


Is it too late to jump aboard this bandwagon? Probably not, given the profit leverage of many such suppliers.


Despite its powerful rally, Arctic Cat still sells for less than 10 times trailing cash flow and 14 times next year's estimated earnings. There's room for further growth, because while sales grew nicely in 2011, they remained 40% below their 2007 peak. At that peak, Arctic Cat's cash flow was 70% above last year's.


The same dynamic can be seen in a name that has recently run almost as hard as Thor and Arctic Cat, but continues to trade at a 40% discount to last year’s highs. Heavy-equipment maker Terex (TEX) builds cranes and aerial platforms, two categories of construction equipment in increasingly heavy demand. To what degree that is the case could become clearer on Feb. 14, when Terex is scheduled to report quarterly results.


The stock has been upgraded to "buy" by a couple of analysts of late. Terex currently sells for 14 times projected 2012 earnings. Yet those earnings would be less than half of Terex's haul in heady 2006. If construction continues to pick up, Terex could run a lot further.


Also looking promising: agricultural and construction machinery maker CNH (CNH) selling for less than nine times trailing cash flow, and just ten times estimated 2012 earnings, out of concern about weakness in its European markets.


Precision Castparts (PCP), a supplier of advanced composites to Boeing (BA) and the makers of gas engines and turbines, is another stock to keep an eye on. I covered some of Boeing's other suppliers three weeks ago, and Triumph Group (TGI) as well as Spirit Aerosystems (SPR) have continued to gain altitude.


Eastwood's Super Bowl ad seems to have evoked a visceral response from a long-depressed TV audience aching to believe in an industrial renaissance. They've been buying Chryslers with an enthusiasm not seen in a long time. And Clint may be right about that second half to come.


Related Reading:

13Comments
Feb 7, 2012 2:00PM
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Clint is right.  America cannot be knocked out with one punch.  It will always get up off the mat and come fighting back.  Don't sell us short... it has always been a losing trade.
Feb 7, 2012 2:34PM
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You Go Clint, make our day.  American workers are the greatest and I challenge US businesses sitting on tons of money

to start investing in America again because you won't lose.  Put folks back to work, get creative, start building, manufacturing,

investing, etc.  and let's get this country moving forward. It can be done!  Kudos to Chrysler and all businesses that have not

turned their backs on american workers. I agree, America will never be knocked down for long and we do get back up we will be  stronger than ever.  Guaranteed!!

Feb 7, 2012 4:08PM
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America will never be knocked down for long and when we do get back up, we will be stronger than ever.
Thumbs up  That is the spirit that make America great.
Feb 7, 2012 3:57PM
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Companies gearing up for construction?  Maybe some of the mattress money is starting to leak out of the seams and find its way into circulation again.  Yep, Clint Eastwood with a "fist full of dollars" and a Dirty Harry smile .. it is going to be "high noon" for all the bad guys to get out of town.
Feb 7, 2012 4:23PM
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Clint, rescue me , I'm being robbed at the gas pump ! It's an American gas pump too !
Feb 7, 2012 5:30PM
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I loved the Eastwood halftime spot -- a beautifully crafted, powerful and moving message. As to Frank's post: you want to throw rocks at it? That's your right, but why would anyone believe your opinions, or any of your supposed facts? Especially why you are too ignorant to express them at the third grade level. Are is not the same word as our. Buy is not the same word as by. If you can't remember what Miss Peach taught you, day after day in third grade, why would we assume that you could correctly parrot what Rush Limbaugh told you last week?
Feb 7, 2012 5:54PM
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I just love the fact that the market had too reach its pre- crash highs before we all start marching through he streets how great everything is.  Three months ago it was all doom and gloom and the Euro zone was going too bring America into a double dip recession.  Most everyone puked out of their investments and put the balance into a safe house.  The Fed decides too keep interest rates at zero, the market recovered all its loses, talk about the Have screwing the have not, what the f#$#..  The media needs too just stop reporting the crap Washington and the power elite feed them and just stick too the facts.  Yeh, right.
Feb 7, 2012 6:10PM
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I wish Eastwood on the commercial would have said, "Make our Day, Foreign Car Makers" as a gambit to support the Big Three here. 
Feb 7, 2012 6:01PM
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Open-mouthed How about "NO MANIPULATIONS HONEST" rally.
Feb 7, 2012 7:17PM
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well the republicons? evil will get you nowhere fast, u think? crazy well no...SICK well yes stupid is...stupid does need i say more? im sure i could but, its takes a lot of time to fix stupids...M
Feb 7, 2012 2:33PM
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Only Miami Beach is worse off than Detroit, which is number two of the ten most miserable cities in the U.S.   Detroit was the setting for "Robocop" One and Two,  and it hasn't gotten much better.  Some compare the city with Berlin in 1945, which is a stretch, to put it mildly, with Berlin now resembling Detroit in '45....oh well. 
Feb 7, 2012 4:57PM
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Orion, got that right, 3.80 in ashford, ct. but do you know after that commercial, i have no more respect for the man.

 

doug: want to be stronger, get the sob out of office. he is bringing us backwards. they had green energy before the 1900's, you want to go back????

Feb 7, 2012 3:12PM
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Let be real here. First of all Chrysler is not American Owned. Secondly, it was not foreign imports which cause The Automaker problem, but them selves. The Automakers and the Unions sat on their butts for 30 years and did nothing accept sit in there HeadQuarters and let the competition eat up their market share. Then the American Taxpayers had to bail them out. The American Automakers still built lesser quality products (volt and others). Buy the way the government is the one buying most of the volts' not the consumer. Also are corrupt congress gave the Automaker additional tax breaks so they can show a profit. Also Toyota, Nissan, BMW, VW, etc., have plants in the United States. I am Proud to be an American, but I do not like being told half truths, Mr. Eastwood!!
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