The outlook for industrial companies, particularly early-cycle
companies, is looking worse as 2015 draws to a close. While a few
sectors look as though they could do well in 2016, many sectors with
significant capex spending like mining, energy, trucks, and autos are
starting to look weak. For Swiss power and automation conglomerate ABB (NYSE:ABB),
the weakness in mining, oil/gas, chemicals, and auto manufacturing is
definitely a threat, and a call for stronger utility spending in the
year ahead is definitely not a consensus call.
The good news is
that it doesn't look as though ABB's management is just hiding under
their desks and waiting for the storm to pass. Management has started up
some relatively meaningful cost-cutting programs and is now examining
whether they want to stay in the power grid business for the long term.
Add in a healthy balance sheet that would facilitate M&A, and I
think ABB is in okay shape heading into this downturn.
The shares
are a trickier call right now. More often than not, buying into a
downturn doesn't really work well. The exception is if and when the
company in question manages to produce "less bad" performance than
expected. I believe there's a chance for ABB to do that, and I do
believe that these shares trade at a double-digit discount to fair
value. That said, this company has earned some of the doubts around it
concerning its margin leverage, its ability to spot and navigate
industry downturns, and its ability to execute on value-additive
M&A.
Continue here:
The Going's Getting Tougher - Will ABB Keep Going?
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