Industrial stocks have done pretty well over the last three months on what I’m tempted to call “the Bob Marley trade” (“… cause every little thing gonna be alright…”), and in many cases, I think the rebounds in share prices have outpaced the likely underlying recovery. Be that as it may, I liked Lincoln Electric (LECO) back in late April (and since the decline began earlier this year), as I thought the downturn in Lincoln’s end-markets gave investors a rare window of opportunity to buy into a very well-run cyclical industrial. Since that last update, the shares have risen another 15% or so and slightly outperformed the broader multi-industrial group.
How much opportunity there is in Lincoln Electric depends a lot on how you view valuation in this “lower for longer” rate cycle. If you think 7% returns are “the new 10%” return, then I’d say Lincoln still has some relative appeal with a mid-to-high single-digit annualized total return potential from here. I do believe this is a well-run company and one well worth owning for the long haul, but I’d caution investors that Lincoln isn’t totally out of the woods yet and there are some longer-term issues that need fixing.
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