EMERSON ELECTRIC INVESTMENT TO WATCH

St. Louis-based Emerson Electric Co. has manufacturing facilities at more than 300 sites throughout the United States, Canada, Latin America, Europe and Asia. One of them is in Southeast Missouri. The company's stock is traded on the New York Stock Exchange under the symbol EMR and appears to be a value investment to watch.

Emerson was founded in St. Louis by inventors Alexander and Charles Meston, who developed uses for the newly developed AC electric motor. The brothers turned to former Missouri judge John Emerson for funding in 1890, and he became the first president of the company. Emerson's motors found their way into many applications. One of the best known, an electric fan, was introduced in 1892.

Their motors were soon driving pumps, sewing machines, player pianos and hair dryers, and the company helped develop the first forced-air circulating systems.

Labor problems and The Depression nearly bankrupt the company, but developments, including refrigerator motors and WWII, helped the company recover. Emerson built gun turrets for B-24 bombers and became dependent on government contracts, which led to financial trouble again during the postwar years. A change of focus in the late 1950s set the stage for the acquisitions and joint ventures that made the company what it is today.

During the 1960s, acquisitions of smaller companies expanded Emerson's product lines to include thermostats, gas controls, power transmission products, welding and cutting tools as well as other products. High-tech fields became the area of focus during the 1970s with acquisitions of companies producing analytical and electrical instruments for chemical, petroleum and industrial applications. Weed Eater, Skil and Craftsman hand tools were among others that came into the fold during the late 1970s and 1980s.

Emerson has spent most of the decade of the 1990s developing its international presence with manufacturing and marketing operations in Eastern Europe, India, China and the Asia-Pacific region.

Since early 1995, Emerson's common stock price has doubled in market value. It split 2-for-1 in March and has increased 19 percent since then. At the current rate, the stock is increasing in price by a little more than 20 percent a year. The big question: Will it continue?

This stock's price earnings ratio at $63 per share is over 24, while the industry and market averages are about 19.5 and 26 respectively. These numbers suggest that Emerson's stock should be priced between $50 and $68. My research, which also considers the stock's dividend yield of 1.8 percent, suggests that a price of $78 would be more appropriate in this market.

I do have a couple of concerns that I cannot measure. Emerson is exposed to the Asian problems from both the revenue and cost perspectives. If the greatest exposure is on the cost side, the company will benefit. The other concern is a dispute between Emerson and a group of board members and minority shareholders of Astec Plc, a British electronics group partially owned by Emerson. The Astec group is fighting against a complete takeover by Emerson. The outcome of this dispute could have a negative impact on Emerson's stock.

Of the 14 brokers' analysts following this stock, three rate it as a "Hold," six say "Buy" and five say it is a "Strong Buy." If I owned this stock, I would continue to hold it. As a value investor, I would watch it closely and look for an opportunity to buy it if there is a price decline on bad news.

Dividend Reinvestment Plan: Yes

Web Site: http://www.emersonelectric.com

Bill Walker is president and CEO of Walkrich Investment Advisors and completes a market appraisal of more than 5,000 common stocks each week. (573) 651-9196 (walkrich@mvp.net)

The Southeast Missourian does not recommend that readers buy or sell stocks featured in this column, which is provided for informational purposes only.