There are no safe havens in the stock market. Every stock carries risk. But some less than others. This column features stocks that have shown one or more of the following characteristics: less volatility, better earnings, larger market caps, safe and increasing dividends. In these times of turmoil, our goal is to show readers better opportunities for investing with fewer risks.

September 23, 2008 - Eaton Corp. (ETN-NYSE) designs, manufactures, markets, and services electrical systems and components worldwide. It offers electrical products for power quality, distribution, and control; fluid power systems and services for industrial, mobile, and aircraft equipment; intelligent truck drivetrain systems for safety and fuel economy; and automotive engine air management systems, powertrain solutions, and specialty controls for performance, fuel economy, and safety.

Eaton's fluid power products comprise pumps, motors, hydraulic power units, hose and fittings, transaxles, transmissions, electro-hydraulic pumps, power and load management systems, and other hydraulic power generation systems; valves, cylinders, electronic controls, cockpit controls, electromechanical actuators, sensors, illuminated, and integrated displays and panels, and other controls and sensing products; and heavy-duty drum and disc brakes, clutches, and controllers for offshore oil and gas exploration, mining, and metal forming markets.

In addition, the company offers agricultural mechanical transmissions; duty automated transmissions; clutches; transfer boxes, gearshift mechanisms, and rotors; and diesel-electric hybrid power systems for commercial vehicles and buses; and automotive products consisting of engine valves, cylinder heads, air and hydrogen management devices for fuel cells, electronically controlled traction modification devices, compressor control clutches for mobile refrigeration, on-board vapor recovery systems, fuel level senders, and turbocharger waste gate controls. The company was founded in 1916 and is headquartered in Cleveland, Ohio.

That's a lot of stuff. And most of it sells very well. In 2007, Auto Components accounted for 13% of sales and 13% of profits. Fluid Power was 34% of revenues and 31% of profits. Electrical did 36% of sales and 35% of profits, and Truck Components hauled in 17% of revenues and contributed 21% to profits. Foreign sales were 35% of the total.

For its seond quarter, Eaton reported $2.10 a share, an 8.2% positive surprise compared to the analysts' consensus estimate of $1.94. Last year in the same quarter, it made $1.70. Next quarter's earnings announcement will be in a few weeks with the consensus estimate (18 analysts cover the company) at $1.92, compared to last year's same quarter of $1.79. For the year, consensus is for $7.75 (vs $6.90 last year), and next year expectations are for $8.55.

Revenues for the second quarter improved by 32%, 8% of which was from internal growth, 19% from acquisitions and 5% from currency exchange rates. The Electrical group sparked the performance, showing an increase of 67% in sales above last year's same quarter. Much of the improvement came from new acquisitions in the segment, but there was still a 12% increase from internal growth. The Hydraulics division made stronger sales, 12% higher than last year's same quarter because of higher international demand for agricultural, mining, and oil field equipment and related products. The Truck group showed a turnaround in sales, thanks to improved demand from Brazil.

Analysts are forecasting revenues to grow by 8.8% in 2009, much slower than the 24% for this year. The weak sector is the North American auto and truck manufacturers. To balance that, look for strong growth from the Electrical segment whose market is forecast to increase by 5% in the international markets. The company recently added 2 electrical firms, Moeller and Phoenixtec to bolster sales. Another sector seeing strong demand is Hydraulics.

More numbers: The Forward P/E ratio is 6.44, trailing P/E is 7.7. Price to Sales ratio is .67. Price to Book is 1.31. Profit Margin was 7.6% for the last 12 months, Operating Margin was 9.5%. Return on Equity was 18%.

Total revenues for 2005 were $13.033 billion. Look for $16.16 billion this year and $17.6 billion next year. The Beta (measures the movement of the stock for the last year compared to the S&P 500 index) is high at 1.42, reflecting the fast decline the stock suffered over the last year. It hit an all-time high of $104.10 in the last 52 weeks. Total Debt to Equity is .628. The Current Ratio is 1.3. Book Value per share is $44.49. The dividend is $2.00, giving a yield of 3.4%.

The stock's current weakness reflects investors' concerns about the Automotive sector. There's no question in this economically challenging time that auto and truck sales are down. That will directly impact Eaton's profitability. But it also has many other divisions that are doing very well. While the growth rate is going to slow markedly next year, the company is still showing positive growth and enviable earnings. And an investor isn't paying a lot for those earnings.

If you're conservative, this stock should hold some appeal. It's selling at a little over Book Value but has been increasing earnings at a respectable rate, giving a good Return on Equity. Value Line gives it an A+ for Financial Strength. There's a decent dividend that takes only 23% of profits to pay. Dig deeper into Eaton if you're looking for a well diversified, global manufacturer.

- Company Web site: www.eaton.com

- Ted Allrich