The industrials have been hammered lately, sending Eaton’s stock down to a level worth buying, said Jim Cramer on CNBC’s “Mad Money.”
Cramer noted Eaton’s stock is down 25 percent from its high, causing the stock to now yield 3.98 percent. To Cramer, that’s the biggest reason Eaton is worth buying now. Whenever the stock has fallen to where it yields near 4 percent, it’s been a fabulous buy point. It worked last October, when investors caught a huge rally shortly thereafter. It also worked during the height of the Great Recession in 2008.
Eaton’s juicy dividend isn’t the only reason Cramer likes the stock, though. He noted the company is the No. 1 or No. 2 player in most every market it operates in. It also has a strong management team, led by CEO Sandy Cutler. Cramer thinks the company will also benefit from its recent acquisition of Cooper Industries, which was its biggest competitor.
The stock is also cheap on an earnings basis. It’s trading at 7.5 percent next year’s earnings estimates, which is a huge discount to its historical average multiple of 13.1 times earnings.
So what’s the bottom line?
“Eaton’s got a lot going for it here, from the transformational Cooper Industries deal, to its exposure to energy efficiency, aerospace and trucking,” Cramer said. “But the reason this stock is now safe to buy is because it’s come down so far that it now has an accidentally high 3.98 percent yield and that’s the level where it becomes safe to own an industrial like Eaton.”
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