by Chuck Carlson, editor DRIP Investor
Technology and health care are two of the more attractive sectors for long-term investors.
Agilent Technologies (
A) gives you quality exposure to both industries.
The
company provides measurement and testing equipment used in a host of
industries, including communications, electronics, chemicals, and
healthcare & life sciences.
Pro?ts are expected to be a record this year, and the company's
long-term growth should exceed the growth rate of the overall economy.
Agilent
shares have pulled back sharply in recent months and are trading at a
21% discount to their 52-week high of $46.72. The price dip is providing
an excellent entry point for investors who want a solid growth
opportunity at a reasonable valuation.
Agilent provides testing
and measurement instruments used in a variety of environments, from
life- sciences laboratories and wireless communications to chemical
analysis and aerospace/defense.
The company has broadened its
product line via acquisitions in recent years, including the acquisition
of Varian in 2010. Its most recent acquisition was the June 2012
purchase of cancer-diagnostics company Dako.
In addition to acquisitions, Agilent's growth strategy hinges on
creating cutting-edge products. To that end, the firm spends roughly 9%
of annual sales on research and development.
Pro?t growth should
be decent this year, with per-share pro? ts for ?scal 2012 ending in
October expected to rise 10%. Growth in ? scal 2013 should accelerate to
14%, paced by improving U.S. economy.
The stock currently
trades at 11 times the ?scal 2012 consensus earnings estimate of $3.24
per share and 10 times the ?scal 2013 estimate of $3.71 per share.
Those seem to be very reasonable earnings multiples for a company growing its bottom line at double- digit rates.
Profit
growth should provide a nice boost to the dividend over time. Agilent
initiated a quarterly dividend of $0.10 per share earlier this year, and
I would expect dividends to grow 5%-10% annually over the next ?ve
years.
Agilent stock has not behaved all that well over the last
four months. Investors seem anxious about the U.S. economy and remember
that Agilent had a particularly rough go of it in 2009, when the
recession bit hard on testing ?rms.
However, I don't expect the
economy to slump into a 2009-like funk and actually see economic
activity accelerating a bit by year-end.
That should dispel
investors' fears of a "double dip" recession and fuel better investor
support for Agilent shares. Downside seems limited to the $32-$34 level.
The stock traded in the mid-$50s in 2011, so there is plenty of upside.
Please note that Agilent recently initiated a direct-purchase
plan. Any investor may buy the ?rst share and every share directly from
the company. Minimum initial investment is $500.
Agilent will
waive the minimum if an investor agrees to automatic monthly investment
via electronic debit of a bank account of at least $50.