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ABB Looks Undervalued, Despite Recent Gains

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As with the product pipeline for big pharma companies and the "billings" metric in big data, investors in big industrial companies, such as General Electric (GE) and Honeywell (HON), that are leveraged to economically sensitive markets such as automotive and energy, understand that order growth is the lifeblood of their operations.

So it came as no surprise when shares of ABB (ABB) fell 5% following a disappointing July quarter. I say "disappointing" here because although ABB's year-over-year revenue rose 6%, which beat Street estimates by a decent margin, not to mention the 2% organic growth, investors were nonetheless disappointed by the 11% decline in orders, which missed Wall Street's estimates by roughly 9%. And it didn't help that process automation orders plummeted 21%.

Given what was -- at the time -- broad sector weakness, analysts were understandably alarmed. Even so, I believe the fact that weak orders were not a unique concern to ABB was reason enough to remain optimistic that management would turn the operation around. Not to mention, management had just delivered a 5% increase in operating income, with better-than-expected results in operating margin.

Essentially, despite ABB's revenue beat and the relatively solid performance in operating margin compared with other industrial giants such as Dover (DOV) and GE, that there were concerns about ABB's future seemed overdone. Fast-forward three months later, and not only has ABB stock gained close to 20% since the second quarter, but management just delivered an exceptional third quarter that reverses all prior concerns of weak orders.

I'm not going to toot my own horn here (too much), but there were plenty of reasons to believe that this rough patch for ABB was temporary. Not the least of which is that management had said as much, suggesting that its timing was a bit off with respect to customer delays. And with orders growing sequentially in almost every product category, ABB benefited from all that pent-up demand, which management hinted at.

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Stock Tickers: GE HON ABB DOV Author Disclosure: At the time of publication, the author did not hold any stock in the companies mentioned.