By a fairly wide margin, the worst performing industrial conglomerate so far this year is European firm ABB Ltd. (NYSE:ABB). The stock is down more than 15% and is now down more than 20% over the past five years. Barring the worst possible outcome from sovereign debt and bad bank troubles in Europe, the stock should eventually rally from recent lows.
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ABB is based in Zurich, Switzerland and works with utilities, industrial clients and commercial customers to help them improve power grid reliability, increase industrial manufacturing productivity and energy efficiency. It is a global industrial firm that operates in over 100 countries. Primary competitors include Siemens (NYSE:SI), Cooper Industries (NYSE:CBE), Eaton Corp (NYSE:ETN) and General Electric (NYSE:GE).
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Outlook and Valuation
Currently, analysts' project 2012 sales growth of 8% and total sales just north of $41 billion. They expect another 8% increase in 2013 and total sales of $44.2 billion. The average profit projection for each year is $1.47 and $1.72, respectively, and means that ABB trades at a forward P/E roughly between 11 and 10.
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The Bottom Line
Europe accounted for nearly 39% of 2011's total sales of $38 billion. Worries over a severe recession in a number of European countries remains a concern, but ABB's businesses tend to be less cyclical when compared to other industrial conglomerates. Sales dipped slightly during the global economic recession caused by the credit crisis, but ABB remained firmly profitable.
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Downside risk in Europe doesn't look that high right now, and could easily be offset by growth in emerging markets. Asia accounted for close to 27% of last year's sales and China stood out at 13% of the top line. Only 14% stemmed from the U.S., making ABB a primarily global play for U.S. investors. At the depressed valuation, the shares could be subject to a rally, and investors are getting paid a 4.3% current dividend yield to wait for the rebound.
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At the time of writing, Ryan C. Fuhrmann did not own shares in any of the companies mentioned in this article.