Johnson Controls Inc (JCI): Looking For The Most Robust Profit Growth? Check Out This Overlooked Sector

To upgrade its manufacturing plants and invest in production line automation, this company spent $1.3 billion in capital expenditures in 2011 and a further $1.8 billion in 2012. In prior years, that figure stood at around $800 million annually. Free cash flow, which has been negative for each of the past two years (thanks to those high capital expenditures), should be solidly positive this year, and perhaps exceed the company record of $890 million (set back in fiscal 2007) by fiscal 2014.

The charm of Johnson Controls Inc (NYSE:JCI)’ business model is its revenue diversification. The company has hefty exposure to the auto industry (as a leading supplier of both auto interiors and batteries) but is also a major player in heating and cooling systems for buildings. Energy efficiency is a key focus in that niche. The chance to buy a stock that is poised for 15% to 20% profit gains — but trades for less than 10 times projected 2015 profits — is quite appealing.

Risks to Consider: Analysts are counting on the economy to cooperate for these companies to generate the solid profit growth they anticipate. Economic weakness would derail that projected profit growth.

Action to Take –> As we head into earnings season, you may hear of fresh near-term weakness for many industrial firms. Yet don’t confuse the near-term with the long-term. Even as 2013 presents plenty of challenges, the multi-year view for these firms is getting brighter, and these stocks remain among the most inexpensive on the market.

If you’re looking to invest in cyclicals without focusing on any one company in particular route, there are ample ETF options, including:

Sector Spdr Trust Sbi (NYSE:XLI)

First Trust Industrials AlphaDEX Fund (NYSE:FXR)

iShares Dow Jones US Real Estate (ETF) (NYSE:IYJ)

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