The buying spree continues. I ran the magic formula screen again as I try to be fully invested in this bear market. After the purchase of Ingersoll-Rand, my cash on hand is a respectable 17%. Ingersoll-Rand (IR) has been on the magic formula for some time but I have been putting it to the side for some unknown reason. I am familiar with the company as we hold some of their products in the shop (we have two of their compressors at work). Ingersoll-Rand currently appears on the magic formula screen for the top 50 and 100 companies with a minimum market cap of 2000 million.
The Businiess Profile From Yahoo Finance
Ingersoll-Rand Company Limited, together with its subsidiaries, designs, manufactures, sells, and services a range of industrial and commercial products in the United States and internationally. The company was founded in 1905 and is based in Montvale, New Jersey.
The Numbers
Yahoo Finance currently shows a P/E of 2 but that is due to a one time item which I believe is the sale of their Bobcat Unit but I have to look into it. Morningstar.com currently has a price to earnings ratio of 12. Forward price-to-earnings ratio is a more realistic 13. According to the magic formula website, Ingersoll-Rand currently has a pre tax earnings yield of 16% and pre tax return on capital of 25-50%. I believe Berkshire Hathaway has a position in Ingersoll-Rand but I am not 100% sure. If they do, that would be another plus but I am not too concerned as I am continuing with a more mechanical approach.
A Heads Up
A company that has appeared on the magic formula screen is Sherwin Williams (SHW), a company I am very familiar with. I might establish a position tomorrow.
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{ 3 comments… read them below or add one }
I’ve done the work on SHW, and own a few shares myself. Very good company, very well run, dividend up for 35 years, etc. The whole deal. Returns on capital are through the roof, cash flows through the roof. Not incredibly cheap, but definitely cheap. The industry is being subject to serious pricing pressure, but Shewin has the franchise to be able to push the costs through. THey have an international segment growing fast enough to buffer a US slowdown: earnings and cash flow will probably be stagnant but not on the decline this year and next. After that, cash flow can continue to grow at modest rates, dividends will still rise, and they are buying back shares. It’s a nice company. Comparable to the Berkshire owned Benjamin Moore.
Thanks Jeff! As you know I am a more mechanical investor and everytime a good friend has something good to say about a company gives me a bit more confidence in the stock.
By any chance have you looked into PPG?
I read a PPG annual report, another solid company, but less consistent and missing the franchise that Sherwin possesses in my opinion. I didn’t dig deeply into PPG, but its another company with pretty good returns on capital and consistent free cash flows. They do stuff with glass and chemicals that Sherwin is not involved in. They just made a pretty major acquisition early this year, SigmaKalon, and just recently sold an auto-glass unit. I think the focus is specialty chemicals and coatings.