While Emerson Electric Co.’s (EMR 36.09 NYSE – yield 3.70%) short-term prospects depend on the vagaries of the global economy, the company has a history of innovation, as well as manufacturing and marketing strength, that bodes well for the longer term. The company’s brands are well-known and well-respected around the globe. And management is considered by many analysts to be best-in-class. Sales of new product introductions have nearly doubled since 2003 and resulted in Emerson capturing leading positions in a number of markets. With sales outside the U.S. now accounting for more than half of total revenues, Emerson is well positioned to grow even if the U.S. economy continues to sputter for some time. Moreover, it has a significant and expanding position in a number of the emerging markets that will provide the lion’s share of global economic growth. Operations threw off $2.6 billion in free cash flow in 2008, and despite expectations of ongoing retrenchment, management is looking for a further $2.6 billion this year. This positions the company to gain market share as weaker competitors struggle. Emerson is also known for being generous to its shareholders. Over the years it has used a significant percentage of its free cash flow to pay dividends and buy back stock. It has raised the dividend for 52 consecutive years. We believe that the current global downturn gives investors the chance to buy a pre-eminent global manufacturer at a beaten down price. Some patience may be required before Emerson fully rebounds, but the dividend compensates you while you wait. Buy Emerson up to $48.
George Putnam, III, The Turnaround Letter
