The Iconoclast Investor

Today instead of a Q&A with Roy, he’s going to elaborate on a stock that he touched on in yesterday’s post.

Ingersoll-Rand (IR) is a global manufacturer of climate control equipment, energy efficiency systems and security locks and doors.  Products include Thermo-King walk-in coolers, Schlage locks, and Trane air conditioners.  The company has been divesting cyclical slow-growth segments, such as heavy machinery, and acquiring companies, such as Trane, that offer better growth potential.  Ingersoll is also expanding rapidly overseas to diversify away from its U.S. business (54% of sales).

Management’s long-range plan to change Ingersoll from a cyclical company to one with steady sales and earnings growth is working.  The company is concentrating on products that possess maximum potential for international sales.  Ingersoll’s recent $10 billion purchase of Trane will add significant domestic and overseas sales and earnings growth during the next several years.  Cost savings and marketing opportunities will boost profitability substantially.  EPS jumped 32% in the second quarter and will increase by 45% for the 2008 year.  We expect to see 30% EPS growth in 2009.

IR’s shares are undervalued after a recent price decline.  The stock now sells at 11.2 times current EPS and at less than its current book value of $41.31.  IR shares will likely climb to our recommended sell price within one to three years.

Editor’s Note: Ingersoll-Rand was recently featured in Cabot Benjamin Graham Value Letter and will be featured there until it reaches it Minimum Sell Price. Click here to learn more about value investing.