Here’s how you know when a stock has hit bottom: when even a negative earnings pre-announcement can't force the share price down. Cramer thinks Emerson Electric is a buy for this very reason.
Emerson has its hands in everything from industrial automation to climate control to power transition equipment, all businesses you’d expect to suffer during a recession. This most recent downturn has been no different.
On Tuesday, the company cut its full-year forecast to $2.40 to $2.60 a share from $2.70 to $2.95. The CEO talked about what Cramer described as a freefall in business, and currency conversion should cost Emerson $1.1 billion in 2009. And that bottom the CEO was hoping for in early 2010 won’t happen until the middle of that year, he said, and a full turnaround might not arrive until 2011.
What did EMR do in response? Nothing. The stock held flat. Cramer said that’s a much-desired sign of capitulation. The company’s fair-weather investors have cashed out and the remaining shareholders are in it for the long haul. This is exactly the kind of stock you want right now: those that refuse to go down despite bad news, largely thanks to a dedicated shareholder base.
Cramer likes Emerson’s dividend, too. The 2009 yield is expected to come in at 4.3%, and 2010 at 4.4% because of a dividend boost. This kind of payout can’t be ignored given that 40% of the historical average annual return from stocks has come from their dividends.
Emerson is done with its decline, Cramer said, and now the company is paying its investors to wait for a rebound. This company is solid, and he thinks the stock is a buy.
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