When the wife and I worked together at my hedge fund during the late eighties and early nineties, I used to pull up in bed with a bunch of annuals from the hottest tech companies: the Ciscos, the Intels, the Microsofts. Talk about bedroom buzz kill for a couple of thirtysomethings.
Now I’ve got a whole new group of annuals I’m bringing to the sheets, and befitting our middle ages and our fifteen years of marriage, the distraction’s gone from the sublime to the mundane. I now fall asleep with annuals from Fortune Brands, 3M, American Standard, United Technologies, and Ingersoll-Rand on my chest. They’ve got the same effect as the tech stocks of yesteryear: definite nighttime showstoppers that once again are making people fortunes. The difference this time around, though, is that unlike the high-flying tech companies of the past, these companies are boring.
That’s right—on Wall Street, boring is chic. We’ve gone from a world that wants pizzazz at any price to a world that feels at home with toilets, cabinets, air conditioners, combination locks, faucets, and, yes, Jim Beam! Of course, it helps that for the first time in a decade, we have the makings of a worldwide recovery. It also helps that the president and the Treasury secretary have done their best to trash the dollar. (That’s great for these big exporters, of course.)
All of these trends have coalesced to create a new cohort of growth stocks, growth that won’t quit, even as the companies themselves receive no play whatsoever for their accomplishments. In fact, some of the CEOs of these companies were downright surprised earlier in the year when I wanted to interview them on my CNBC television show, Kudlow & Cramer.
Yes, these companies have product lines that are thoroughly soporific. But they’re working. And they’ll continue to work, because despite their rallies these stocks remain much cheaper than most health-care, semiconductor, software, and bank stocks.
Here, then, are five of my favorite colorless stocks that not only allow their owners to sleep well at night but will put you to sleep if you sit down with their 10k’s or 10q’s anywhere near a comfortable chair or even a cot!
1. American Standard’s promo materials get right into it: “Introducing the Champion Toilet. It blows the lid off everything you know about toilets.” I’m not kidding. They sent me a press kit to announce the October 28 rollout of this beauty, complete with a “Say goodbye to your plunger” toilet toy. The company, a combination of the old American Radiator and Standard Sanitary, has been around forever. But its products are still growth products: Much of the world lacks indoor plumbing. If the rest of the planet adopts ASD’s products with the devotion with which they’re purchased in America—three out of every five bathrooms contain American Standard stuff—the company could grow for years and not saturate its markets.
ASD, run by Fred Poses, my nomination for the best chief executive in the country, throws off giant amounts of cash, can pay a big dividend, and can buy back debt. A quintessential growth company masquerading as an old-line manufacturer.
2. Nobody much cares about Ingersoll-Rand, even though it’s up huge this year and still sells much more cheaply than almost any industrial company I know. Chances are you’ve unknowingly seen or used one of IR’s locks or biometric security systems or supermarket display cases. The company also makes refrigeration equipment for trucks and overseas transport, not to mention air compressors and steamrollers. This $58 stock could see $80. In the meantime, the downside might be no more than a few points. Twenty-five up and 3 down—what’s not to like?
3. If you think of 3M as tape and Post-its, perhaps you ought to think about vacuity-display-enhancement optical films and immune-response modifiers, two fast-growth businesses that 3M is right on top of. James McNerney, late of GE, took over this company a couple of years ago and turned it from a country club into one of the best industrial combines on earth. So boring that it is often overlooked, 3M is now the best stock in the Dow. While 3M just split the stock to the seventies, I think this one sees $100 by, get this, year’s end.
4. Even Fortune Brands’ liquors—Jim Beam, Old Grand Dad, Old Crow—are eye-glaze-overs. The only thing that Fortune Brands makes that’s compelling is money, and it does that in spades. You go into Staples or Office Depot, you see row after row of its stuff: Swingline, MACO labels, and Wilson Jones bindery supplies. Or stroll into a Lowe’s or Home Depot, and you’ll see Moen faucets. You also get great management here, as CEO Norm Wesley cares passionately about shareholders.
5. If they called it Otis Elevator, you’d probably be more interested. Or Pratt & Whitney (engines). Or Carrier (air conditioners). Maybe even Sikorsky Aircraft. Instead, we have United Technologies. Heck, it would be better if it were Amalgamated Acme Products—that would be more meaningful. But this company has been on fire. Otis is the elevator company worldwide. Those gigantic skyscrapers in the Far East? They are chock-full of Otis elevators. Carrier’s sales are growing 5 percent, its profits 10 percent, and this is in spite of the weakness in commercial HVAC, one of its biggest drivers. Military aerospace is saving commercial aerospace for now. I think that the commercial cycle doesn’t come back until 2005, but everything else at Utex, as everyone calls it, will tide things over. This company blasts out cash like the U.S. Mint. I have waited for it to come down two or three points to buy it for about 30 now. I guess I should just give up and come in before it hits 100.
Oh, and one other thing: if you are tired of hearing that America has lost its manufacturing edge and you want to do something to help regain it, buy shares in these companies. These are the companies that have the best hope of exporting U.S. know-how and industrial might without exporting the jobs!
Yep, you can have your cake and eat it, too—as long as it is plain vanilla with no icing and no taste.