Writing about Lincoln Electric (LECO) in August, I was concerned about the risk that the Street had come back too far too fast on expectations for improving results in 2021 and beyond. While I was partially right, insofar as Lincoln Electric shares have basically tracked the broader industrial space since then, I missed just how much more investors were willing to bid up industrials, particularly on hopes of a strong short-cycle rebound in 2021, and these shares rose more than 25%.
Industrials may hold up a little better in a market downturn, but I’m still concerned that valuations are stretched, and that applies as well to Lincoln Electric. While I do have some concerns about the company’s lagging performance (relative to peers like Illinois Tool Works (ITW) and Colfax (CFX)), I do still believe that this company is an exceptionally well-run mid-cap industrial, a potential buyout target for a company looking to add a new vertical, and still leveraged to growth opportunities in new materials and automation.
As far as valuation goes, Lincoln looks priced in line with other high-quality industrials as far as return prospects (a group that includes Dover (DOV), Emerson (EMR), Parker Hannifin (PH), and Rockwell (ROK)). If you’re comfortable with the overall valuation of industrial stocks, I suppose Lincoln should still be attractive, but I regard valuations as more stretched today.
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Lincoln Electric Will Leverage The Short-Cycle Recovery And Growth Should Rebound Significantly
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