After going through our screening process, we identified shares of the following tooling and machinery companies as offering value: Actuant Corporation (NYSE: ATU); Avery Dennison Corporation (NYSE: AVY); Dover Corp. (NYSE: DOV); Eaton Corporation (NYSE: ETN); ITT Corporation (NYSE: ITT); Illinois Tool Works Inc. (NYSE: ITW); and Parker Hannifin Corporation (NYSE: PH).

All of these companies sport attractive valuations in a fairly narrow range.  Avery Dennison posts the best forward PE multiple with 10.9.  Actuant Corporation posts the highest forward PE with a 14.1 multiple.  Every one of these companies boasts an attractive return on equity (ROE) exceeding 14.5%.  Avery Dennison, Illinois Tool Works and Parker Hannifin all boast a ROE higher than 19%.  Analysts’ estimates for next-year earnings growth range from ITT’s 8% to Actuant’s 19.6%.

Market caps among these companies range from Actuant Corporation’s $1.9 billion to Illinois Tool Works’ $29.5 billion.  Price to book ratios range from Actuant’s low of 2.15 to Illinois Tool Works’ high of 2.85. Most of these have above average upside to their consensus price targets from analysts and most are off from recent highs by more than the broader market.  Except where otherwise noted our source for all financial and performance data is Finviz.

Actuant Corporation (NYSE: ATU) posts a forward PE of just under 14 and its market cap is rather small for this group at about $1.8 billion.  Even at this relatively modest level, this is the richest price to earnings multiple among these companies.  Actuant posts a price to book ratio of 2.15 to 1, best among these companies.  Analysts estimate next-year earnings growth at 19.6%, best of this lot.  With a consensus target price of $32.00 the shares have an implied upside of 18%.  Actuant’s shares recently traded at $27.00.  The 52-week price range is $17.71 to $30.41.  This one has also paid an annual dividend of $0.04 for several years in a row and that 0.1% yield is so much lower than the rest of this group that you have to wonder if a dividend policy adjustment is necessary. Shares peaked just over $35 at the peak before the recession took hold.

Avery Dennison Corporation (NYSE: AVY) boasts a forward PE of 10.9 and a return on equity (ROE) of 19.69%.  Both of these figures are first place numbers among these companies.  Analysts estimate next-year earnings growth at 19.3%, second highest among this lot.  With a consensus target price of $46.71 the shares have an implied upside of 20%.  Avery Dennison’s shares recently traded at $38.70 and the 52-week price range is $30.92 to $43.26.  This one is diversified and some of its operations might be considered more office products than the rest of its operations.  The $4 billion company in market cap offers a dividend yield of 2.6%.  More important than its 52-week range is that this one peaked around $70 back in 2000 and then again back before the great recession.

Dover Corp. (NYSE: DOV) has a 13.8 forward price to earnings multiple, second richest of this lot.  Analysts estimate next-year earnings growth at 14.3%, lowest of these companies.  With a consensus target price of $74.67 the shares have an implied upside of roughly 8.2%, the   smallest upside among these companies.   Dover’s shares recently traded at $68.20 and the 52-week price range is $41.41 to $70.15. Dover specializes in industrial products and components and it offers a lower dividend for this group of about 1.6%. Unlike some others in this group, its shares have recently hit all-time highs and this one is down only about 4% from highs.

Eaton Corporation (NYSE: ETN) posts a forward PE of 11.3, second best among these companies.  The company’s $18 billion market cap makes it second largest in this lot.  Analysts estimate next-year earnings growth at 18.6%. With a consensus target price of $60.70 the shares have an implied upside greater than 16%.  Eaton’s shares recently traded at $51.70 and the 52-week price range is $31.87 to $56.12.  Eaton is involved in power management and it makes electrical components and systems, as well as components and systems in hydraulics, aerospace, and more.  The company also sports a common stock dividend of roughly 2.6%.

ITT Corporation (NYSE: ITT): Analysts estimate next-year earnings growth at less than 8%, ranking it seventh of these seven companies.  With a consensus target price of $64.62 the shares have an implied upside of almost 10%.  ITT’s shares recently traded at $58.50.  The 52-week price range is $41.46 to $63.44.  ITT is worth $10 billion in market capitalization and pays a dividend of about 1.7% to investors.  ITT is almost a conglomerate as far as how many segments it services in equipment, tools, and machinery for water, transportation, defense, and more.  This one traded at nearly $70 per share at the peak before the recession.

Illinois Tool Works Inc. (NYSE: ITW) posts a $29.5 billion market cap, largest of these companies.  The company posts one of the better ROE numbers with a return on equity of 19.4%.  With a consensus target price of $67.36 the shares have an implied upside greater than 15%.  The company’s shares recently traded at $58.20.  The 52-week price range is $39.29 to $59.27.  ITW pays investors a dividend of roughly 2.3%.  This one is very cyclical as it is involved in industrial products and equipment in a myriad of areas.

Parker Hannifin Corporation (NYSE: PH) posts one of the better ROE numbers with a return on equity of 19.4%.  The shares’ consensus target price of $107.46 imply an upside of almost 21%, best of this lot.  Parker Hannifin’s shares recently traded at $87.75 and the 52-week price range is $54.79 to $98.99.  The maker of fluid power systems and electromechanical controls and components seems to have lost favor of late with analysts.  If it lives up to its 10% earnings growth for fiscal 2012 (June-end), then it trades at only 11.7-times forward earnings.  It has a dividend yield of about 1.7%.

Using the term “value” certainly does not imply a search for immediate gains and many cheap stocks often get cheaper until a catalyst arises.  This group of value stocks is also not really anywhere close to 52-week lows, which is often a break-down feature that certain value fund managers use in screening value candidates from time to time for bargain bin prices of beaten up stocks.

Jon Ogg and Jim Berdou

In alphabetical order of their ticker symbols:  Avery Dennison Corporation (NYSE: AVY); Bemis Company, Inc. (NYSE: BMS); Dean Foods Co. (NYSE: DF); Johnson Controls Inc. (NYSE: JCI); Kraft Foods Inc. (NYSE:  KFT); Leggett & Platt, Incorporated (NYSE: LEG); Newell Rubbermaid Inc. (NYSE: NWL); Phillips-Van Heusen Corp. (NYSE: PVH); Rock-Tenn Co. (NYSE: RKT); Sealed Air Corporation (NYSE: SEE); and, Xerox Corp. (NYSE: XRX).

Price to book values range from Xerox’s 1.1 to Johnson Controls’ 2.4.  Even though we identified these companies in searching for attractive price to book values, every one of them offers respectable next-year earnings growth.  Analysts expect next-year earnings expansion ranging from Newell Rubbermaid’s 10.6% to Rock-Tenn’s 39%.  All sport forward PE multiples below 14.   Forward PE’s range from Xerox Corp’s 8.1 to Kraft Foods’ 13.9.

Seven of the eleven companies boast an implied upside price expansion exceeding 20%, based on current share prices versus consensus price targets. Leggett & Platt, Newell Rubbermaid, Xerox and Johnson Controls lead the rest with implied price expansions ranging from more than 27% to close to 31%.  Each of these eleven companies has an average daily trading volume exceeding 750,000 shares. Except where otherwise noted, the source for all performance and financial data is Finviz.com.

Avery Dennison Corporation (NYSE: AVY) has a price to book value near 2.3  to 1.  The company’s market cap is just less than $4 billion giving it a middle-of-the-pack rank among these companies.  Its forward PE is about 10.2.  With a consensus target price of $46.71, the shares have an implied upside exceeding 25%.  Shares of Avery Dennison closed Friday at $37.19, down 1.56%.  The 52-week price range is $30.54 to $43.26.  This outfit that makes labels and other office products recently took a downgrade to “Neutral” at Bank of America Merrill Lynch.  It pays a nice dividend with a yield of close to 2.7% and shares were above $60 back in 2007 before the recession.

Bemis Company, Inc. (NYSE: BMS) has a price to book value of 1.8  to 1.  The company’s market cap is just less than $3.4 billion.  Its forward PE is near 12.5.  With a consensus target price of $34.89, the shares have an implied upside of 8.6% among the lowest of these companies.  Bemis Company shares closed Friday at $32.11, down 0.43.  The 52-week price range is $25.79 to $33.57. The packaging materials company also has a respectable dividend yield of about 3%, even if Goldman Sachs did downgrade the rating to “Sell” in recent weeks..

Dean Foods Co. (NYSE: DF) boasts a price to book value of 1.4  to 1, ranking it second among these companies.  The company’s market cap is $2.2 billion, the smallest of these companies.  Its forward PE is near 13.2, among the highest on this list.  With a consensus target price of $13.50, the shares have an implied upside 12.5%.  In Friday trading Dean Foods closed at $12.00, down 1.80% for the day.  The 52-week trading range is $7.13 to $13.90.  This milk and dairy producer has been in recovery mode.  It made this screen even after a recovery of more than 75% from the bottom.  In 2007, shares were worth more than $40.00.

Johnson Controls Inc. (NYSE: JCI) has a price to book value of 2.4 to 1, a comparatively high price to book value ratio among these companies.  With a market cap exceeding $26 billion, Johnson Controls is the second largest company ranked here.  Its forward PE is a tad greater than 12.  After robust expansion of earnings for the current year, analysts expect next-year earnings expansion exceeding 34%.  With a consensus target price of $48.50, the shares have an implied upside of 23.8%.  Shares of Johnson Controls closed Friday at $39.17, unchanged.  The 52-week price range is $25.63 to $42.35.  The car parts and systems manufacturer is one of the few which pay a dividend (about 1.6%) and this one has recovered mightily from the recession lows when shares fell to well under $10.00.

Amgen (AMGN) Cut to Hold at Citigroup.
Avery Dennison (AVY) Raised to Overweight at JPMorgan.
Columbia Sportswear (COLM) Raised toOverweight at Barclays.
Descartes Systems (DSGX) Started as Overweight at Thomas Weisel.
eHouse China (EJ) Raised to Outperform at Oppenheimer.
JA Solar (JASO) Cut to Equal Weight t Barclay.
King Pharma (KG) Cut to Hold at Needham.
Select Comfort (SCSS) Reinitiated as Buy at KeyBanc.
SunPower (SPWRA) Started as Buy at Needham.
Tenet Healthcare (THC) Raisd to Outperform at Baird.

JON C. OGG
August 14, 2009

AutoDesk  (ADSK) Started as Neutral at Janney Montgomery Scott.
Avery Dennison (AVY) Started as Underperform at Baird.
Caterpillar (CAT) Cut to Sell at UBS.
Discover Financial (DFS) Started as Outperform at FBR.
FEI Co. (FEIC) Started as Buy at Stifel Nicolaus.
Franklin Resources (BEN) Started as Outperform at Wachovia.
Nordstrom (JWN) Cut to Neutral at Credit Suisse.
Parametric Technology (PMTC) Started as Buy at Janney Montgomery Scott.
Schlumberger (SLB) Started as Neutral at HSBC.
Veeco Instruments (VECO) Started as Buy at Stifel Nicolaus.

JON C. OGG

Avery Dennison (AVY) Company announces new financing. Market takes it badly. Down to $51.12 from 52-week high of $71.35.

Blockbuster (BBI) Renting movies at stores is dead, just no buried. Down to $3.74 from 52-week high of $7.30.

Gatehouse (GHS) Newspaper company. Bad earnings. Falls to $8.95 from 52-week high of $22.18.

Daktronics (DAKT) Bad guidance. Bad investment. Drops to $19.76 from 52-week high of $40.05.

MedCath (MDTH) Ugly results for last quarter. Falls to $21.40 from 52-week high of $34.61.

Douglas A. McIntyre