As of late, most industrial stocks have gotten killed, as investors fear a global slowdown will affect the sector's forward earnings power. But the time to buy industrial stocks is when their forward P/Es seem sky-high and their sales seem to be failing off a cliff. Conversely, the time to sell industrial stocks is when their forward P/Es seem extremely low and revenue is running at 110% of capacity.

Here are a few industrial stocks that have gotten too cheap.

Gardner Denver (GDI): As written in its annual report, Gardner Denver “engages in the design, manufacture, and marketing of compressors and vacuum products, and fluid transfer products in the United States, Europe and Asia. Gardner Denver operates in two segments: compressors and vacuum products, and fluid transfer. The compressor and vacuum products side of the business makes rotary screws, liquid ring pump and other various engineered systems. The fluid transfer side of the business manufactures water jetting systems, and related aftermarket parts used in oil and natural gas wells.”

The company generates 60% of revenue from outside the U.S. The global market segment for Gardner Denver’s industrial product is approximately $8 billion dollars, growing at 3% to 5% annually; however, management has planned on growing 3 times faster than the industry growth rate. Gardner Denver ranks first or second in all of its end markets. On the compressor and vacuum products side of the business, Gardner Denver is No. 1 worldwide in compressors, blowers and liquid rings pumps. On the fluid transfer side of the business, Gardner Denver is No. 1 in land based oil and natural gas frilling pumps, No. 2 in well servicing pumps and No. 2 in loading arms. This dominant market share leads to strong brand loyalty and possible pricing power.

Gardner Denver is a company on the move. Revenues have grown from $420 million in 2001 to $1.8 billion in 2007, and diluted earnings per share have grown from 70 cents to $3.50 in the same time period. The company has had very strong financial performance despite a weaker U.S. economy, which means that Gardner Denver could be off to the races once the economy turns around. The company saw 14% organic revenue growth in 2005, 17% in 2006 and 21% in 2007. Cash flow from operating activates increased from $18 million in 2004 to $167 million in 2006. Debt went from $180 million to $40 million from 2005 to 2007, which is key for financial growth.

Gardner Denver trades with a forward P/E of 6.1 and EV/EBITDA of 3.9.

Colfax (CFX): Colfax, which came public in May of 2008, is a leading fluid management company. Its sales grew from $393 million in 2006 to $506 million in 2007, while earnings per share, based on current shares outstanding, ballooned from 7 cents in 2006 to $1.79 in 2007. EBITDA in 2006 went from $29.65 million to $138 million in 2007. Colfax should also get a huge bump from the weak dollar. The company has a backlog in excess of $250 million and a short position of 11%, and it trades with a forward P/E of 6.26.

Other names to consider include Terex (TEX), which trades with a forward P/E of 3.37; Manitowoc (MTW), which trades with a forward P/E of 3.23; and Emerson (EMR), which trades with a forward P/E of 10.25.

Posted on Oct. 26, 2008