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750 Stocks Rolled in to One!

25 September 2007 - Features - Editor

People, who are not engineers, may not think much about joints, but they are ubiquitous in life. Wood, glass, concrete, metals, and plastics, are some of the conventional materials, which are used in construction, and which need to be joined together or fastened, but science has begun to discover and to develop new materials as well. Fasteners come in all forms and sizes, but their values in engineered products are of universal importance (Messler, 2004).

Such engineered products straddle an almost unending array of industries and applications. Specializing in such engineered products may therefore seem to be a contradiction in terms, given the many customer groups for such goods and services, but it is also a sound basis for investment in commercial terms (This is ITW, 2007).

Illinois Tool Works (ITW) has operated some 750 distinct lines of enterprises, on global bases, for over a century (This is ITW, 2007). Investors, who hold stocks of this relatively low-profile but professionally sound company, may be thought of as highly diversified conglomerates in their individual rights, given the extraordinary scope of industrial activities which comprise this company. The specialty engineered products of ITW are used by the automotive, construction, and consumer durable sectors of economies in all major nations (This is ITW, 2007). ITW also offers specialty systems for the food and beverage sector. Stocks of this company are like owning entire indices of major Exchanges!

A Triad of Measures to Add Superior Values to Stocks

Since ITW operates in so many sectors, holders of stocks may expect the company to skim most of the segments in which it operates. However, the reverse is true, and ITW is determined to penetrate each of its markets as deeply as possible, rather than relying on price increases to sustain revenue growth (Slatter, 2005). This approach contributes to the reliability of returns it consistently provides for investments in its stocks. It also forces all tiers and branches of the organizational structure to keep raising productivity bars. ITW enjoys a relatively stable competitive environment wherever it operates, allowing analysts to forecast future results on the bases of actual past achievements.

An interesting question, which many people ask before buying ITW stocks, is how can top executives oversee 750 different lines of business? The answer is in the company conscious efforts to promote decentralization as a major strategic approach (This is ITW, 2007). ITW employees display unusually high degrees of entrepreneurship in the interests of the company, because of the decentralization approach. This also enables each business to stay close to its customers, with balanced developments in all sectors (This is ITW, 2007).

Focus on market shares and decentralization, combines with the broad diversification of ITW, to form a triad of measures for the consistent and reliable development of the organization as a whole. Investors who buy ITW stocks not only enjoy steady dividends and value appreciation, but can use management reporting to understand a perfect template of how to build a great company!

Management Processes Protect Future Values of Stocks

How can investors recognize the best stocks? Why do some securities consistently buck trends, appreciating steadily even during down turns, while paying growing dividends without fail? The core answer to such classic investment questions lies in how professionals assess corporate values. The best organizations are ones, which balance the interests of all stake holders, use sound business models, and build stable equity structures (Helfert, 2001). These outputs are most reliably achieved through appropriate business processes, such as ones for excellence in customer service, integrity in accounting, discipline in expenditures, and incessant innovation. It is easier to assess such results if one has access to the internal workings, but there are some indicative measures, which even people with minority holdings of stocks can discern externally.

Returns on investments dominate the interests of all entities, which hold stocks of a corporation’s equity (Helfert, 2001). Cash generated by a business can be used for fresh investments, used to purchase outstanding shares, or get paid out in the form of dividends. The latter is most relevant for people who hold stocks with short-term aims, but those with long-term interests may prefer reinvestment proposals in preference to immediate cash pay outs. All stakeholders are interested in business results and in prospects for the foreseeable future (Helfert, 2001). The best executives are ones who make their achievements, policies, and plans in all these respects clear, and who report on such matters in time. ITW excels in meeting all these criteria.

Proven Benefits of Holding ITW Stocks

Earnings per share have climbed from $1.23 in 1994 to over $4 by 2004 (This is ITW, 2007). Dividends have grown by almost 14%, to touch $1.00 during this period. The company almost inevitably achieves a 10% annual growth in gross revenues, and has held its pre-tax percentage returns at around 17% (This is ITW, 2007). The P/E ratio remains reasonable below 20, and the payout ratio is generous for investors, at around 25%. Overall, ITW stocks offer a model balance between risks and returns, and most engineers will agree that the company is firmly entrenched to meet the future with confidence.

Works Cited

Helfert, E, 2001, Financial Analysis Tools and Techniques: A Guide for Managers, McGraw-Hill Professional
Messler, R, 2004, Joining of Materials and Structures, Elsevier
Slatter, J, 2005, The 100 Best Stocks You Can Buy, Adams Media
This is ITW, 2007, company web site

 


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