NEW YORK (CNN/Money) -
Industrial companies that make mundane products sometimes incorporate technology that goes unappreciated.
Everybody thinks they know what tech consists of -- computer hardware, software, telecommunications, pharmaceuticals and medical equipment. That's what most growth investors want, and what they're willing to pay up for.
Glitz sells. That's true in the stock market just as it is on the red carpet in Hollywood.
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But there are a host of companies using technology in less flashy ways that are capable of above-average long-term earnings growth.
These "hidden-tech" stocks are concentrated in cyclical industries -- such as specialty chemicals, industrial components, control systems, aerospace and capital equipment. But they're no more volatile than computer or telecom stocks.
They're also often cheaper. What's considered a sky-high P/E for a hidden-tech stock would be taken in stride for a high-tech stock. But it shouldn't matter how glamorous a company's business is. The only thing that counts in the long run is whether the shares turn in substantial growth.
Both of these hidden-tech companies enjoyed consistent price gains during the 1990s. From 1991 to 1999, in fact, their share prices increased more than sixfold. Since 1999, both stocks have moved sideways. But they should be poised for further big gains once the recovery really gets rolling.
Illinois Tool Works is the manufacturer of highly engineered plastic and metal components and fasteners. On Dec. 15, the company reported that earnings for the fourth quarter appeared to be running a couple of cents ahead of consensus estimates.
For 2004, Illinois Tool Works (ITW: Research, Estimates) earnings are projected to rise 13 percent and continue at that rate over the next five years. The stock, which is listed on the Sivy 70, pays a 1.1 percent yield. Recently $84 a share, it trades at 22 times estimated 2004 earnings.
Rohm and Haas makes specialty adhesives, coatings, as well as chemicals used by the electronics industry. On Dec. 18, the company announced that sales for the fourth quarter looked to be 10 percent to 12 percent higher than year-earlier levels. These results are slightly above analysts' expectations.
The company continues to trim costs and plans to eliminate 550 jobs, about 3 percent of the total work force. Earnings are projected to gain 22 percent in 2004 and continue to grow at double-digit rates thereafter. Rohm and Haas (ROH: Research, Estimates) stock, which is not in the Sivy 70, pays a 2.1 percent yield. Recently, $42 a share, it trades at 21 times estimated 2004 earnings.
Michael Sivy is an editor-at-large for Money magazine. Sign up for free e-mail delivery of Sivy on Stocks every Tuesday and Thursday.