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4 Sweet Swing State Stocks To Buy

America's heartland shows a stronger beat

With Rick Santorum officially pulling out of the Republican presidential race, it finally appears as if the presidential campaign is set (although it’s possible neither Ron Paul nor Newt Gingrich got the official email), with Mitt Romney expected to face off against President Obama.

Both Romney and Obama have spent a lot of time crisscrossing the Midwest, “America’s Industrial Heartland,” which long before the economic downturn of 2007-2009 has been referred to with quite a different moniker: the Rust Belt.

While not fully recovered, times have changed as companies moved to retool factories and plants, tightened belts through cuts and downsizing, and retrained employees to run more efficient manufacturing facilities and equipment.

As the election cycle shifts into high gear, it’s worth taking a look at some companies smack dab in the middle of the Midwest that have come through the bright end of the tunnel in strong shape, both economically and, most recently, with solid stock gains.

These four companies represent the Heartland in Indiana, Illinois,  and Michigan — all critical swing states that both Romney and Obama will fight for tooth and nail.  These states could very well decide the election.

Time to head off, with our first stop in Illinois:

Caterpillar

Caterpillar (NYSE:CAT) is a Peoria, Illinois, manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives. CAT may be the poster child for success after the darkness: the company closed plants and laid off 33,000 workers in 2009,and their net income dropped off the table, from $3.5 billion in 2008 to $895 million in 2009.

Over the last two years the company has jumped in on an uptick in construction and heavy machinery spending. In addition, with aging machinery needing replacing and the credit markets loosening up, demand has soared. CAT now shows a record backlog of nearly $30 billion vs. a 2009 figure of $10 billion.

To meet the demands, CAT built 15 new, high tech facilities, hired thousands of new employees, and brought back many others, and with $2.6 billion approved for capital expenditures in 2012, CAT is ready to continue building.

Meanwhile, revenues jumped up to $71 billion in 2011, a 47% increase from 2010, and earnings followed, up to $4.9 billion in 2011, an 82% increase year over year. CAT shares are now trading well over $100 per share, and CAT recently told investors it would maintain the quarterly dividend of 46 cents per share. With a solid 1.73% dividend yield, all is playing well in Peoria.

(Caterpillar is one of InvestorPlace.com’s Top 10 stocks for 2012)

Deere

Deere (NYSE:DE) out of Moline, Illinois, operates in three  business segments: agriculture and turf, construction and forestry, and credit. You know who they are: green tractors dot the entire American landscape, not just in the Midwest. Indeed, tractors are their market.

Deere has taken advantage of stronger demand for farm equipment and increased sales of construction equipment to drive revenue and earnings increases in 2009-2011 after a big drop off in revenue and earnings in 2008-2009.  DE is moving aggressively into overseas markets where demand for farm equipment is particularly strong like Brazil, China, Russia and India, and their positioning appears just right.

The U.S. Department of Agriculture is predicting favorable farm conditions in the U.S. and overseas, so Deere is ramping up to meet the demand, retooling an existing manufacturing facility in Waterloo, Iowa, to the tune of $70 million. Indeed, the agricultural and turf segment of the business generates nearly 70% of overall revenues.

Throw in an historical knack for increasing dividends, a mouth watering 2.4% current dividend yield, and you’ve got another long term winner in the portfolio.

Ford

Highland Park, Michigan, based Ford Motor (NYSE:F) is a producer of cars and trucks. That’s really just the short version for one of America’s most iconic names and brands. Ford might just turn out to be one of the best turnaround stories in a decade, a symbol of resurgence in the Midwest. Consider this:  in 2008, Ford’s market capitalization was $5.5 billion: today it is hovering over $45 billion.

After taking a beating in the early 2000’s,  in 2006 Ford went outside the Ford family for the first time in it’s history to lure a non-family member to run the business. Alan Mulally, a former Boeing  (NYSE:BA) executive, came in to retool the company brand, and polish the company name.

Mulally has succeeded. He dropped the Volvo and Mercury lines, and focused his company’s attention on a one-brand name strategy: Ford. Mulally cut factory production to meet demand, worked with the unions to cut costs and improve productivity and the company worked hard to renew appeal in their cars.

In short, Mulally and his team got back into the automobile business with new cars, new styles and, by the way, not a dime of money from the U.S. Treasury.

The results are nothing short of spectacular: after losing $14.8 billion in 2008, the company came all the way back, capping the run with a $20 billion profit in 2011, and a reinstatement of a dividend, the first since 2006.

Revenues are on a steady track upwards, and while the company still has challenges, as U.S. sales are slowing, the Ford name is once again up on the top shelf, and, with a trailing P/E of 2.41 and a forward P/E of just 6.99, has a lot of room to grow the stock price.

Cummins

Columbus, Indiana, based Cummins (NYSE:CMI) is a diesel engine manufacturer with it’s hands in so much more: the company designs, manufactures, distributes and services diesel and natural gas engines, electric power generation systems and engine-related component products.

What it all this means is they are power generation from head to toe. Cummins has been riding the tide of sales increases in machinery, farm equipment and trucks for the last three years and they’ve seen revenues and profits incrementally but steadily increase year over year in 2009-2011.

Cummins isn’t without some foresight, as they recently inked a partnership agreement with Westport (NASDAQ:WPRT), a Vancouver, Canada, leader in natural gas engines. The partnership should provide Cummings with a strong entree into that new, but growing,  marketplace.

Cummings has seen steady growth in revenues and earnings since 2009, and the stock price has increased nearly 500% over a similar period, recently creeping in on its 52 week high of $128. With a cash horde of $1.76 billion, the company has the money to invest in new facilities and opportunities, in addition to maintaining a steady dividend flow. Cummins is a steady performer

Marc Bastow holds no positions in WPRT, CMI, DE, CAT, or F


Article printed from InvestorPlace Media, http://investorplace.com/2012/04/4-sweet-swing-state-stocks-cat-de-f-cmi/.

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