- Why should an cyclical industrial stock that sells big ticket automation equipment be bottoming and turning higher without any signs of improvements in the US or world economies?
- Why should a stock with big export business be turning up when the higher dollar would seem to have diminished the company's competitive advantage?
- With all the bad news out there, why would any stock be trying to lay in a bottom, as EMR's chart appears to be.
I think the answer to all three of these questions -- and all the others that may come to mind -- is simple: investors are beginning to get a better feel of how long and deep the recession may go on, and who the ultimate winners will be.
If the Federal Reserve and the US Treasury are going to prop up the banks and other key industries, and the new Administration is gearing up to stimulate the US economy by as much as $1 trillion, the economy may show positive results faster than many people thought possible just a few weeks ago.
Emerson bills itself as "a diversified global manufacturing company that brings technology and engineering together to provide innovative solutions. . . ." If the stock is turning, investors must be concluding that the global economy is not on its death bed and that the combination of the undergirding of the banks and the speedy initiation of government stimulus packages around the world will show results over the next 12 months.
Our models indicate that EMR is undervalued. The recent attempt at a bottom is a good sign that this undervaluation is being recognized by more and more investors.
The author does not own the stock, but is intrigued by its recent action.