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Industrials: A.O. Smith

A.O. Smith NYSE:AOSWhat’s a house without a water heater? A.O. Smith (NYSE:AOS) makes them — with and without tanks — in the U.S., Canada, China and India.

I love Smith’s business model because it manufactures its products primarily for domestic consumption. That means most of its manufacturing in China is meant for Chinese customers, and the same is virtually true everywhere else it does business — including the U.S.

In October, AOS announced excellent third-quarter results and raised its full-year earnings forecast to between $2.85 and $2.95 per share — a 19% increase over 2011. Its Chinese business is really booming, growing 22% in the quarter thanks to new products, additional distribution and market share gains. Its profitable growth in China helped increase operating profits in the rest of the world (outside North America) by 41% in Q3 to $12.7 million. North America, which represents 73% of its revenue, saw operating profits increase 64% to $50.7 million.

It’s a great business that you can own for far less than General Electric (NYSE:GE). This is my second-favorite pick of the bunch, only behind …

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