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Three analysts and top management from sixteen sector firms examine the industrial manufacturing sector in this special 83-page Industrial Manufacturing issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info522.htm

TWST: John, what are your favorite names in the group today?

Mr. Inch: We’ve talked a lot about the cycle. So the question is where can you get exposure to the cycle without buying a stock that is ahead of itself. I would still put new money into Ingersoll-Rand (NYSE:IR), and I would be more aggressive if the stock were to pull back, perhaps in tandem with its peers, in the near term. The second name I would emphasize would be SPX (NYSE:SPW) . Here’s another company that has been beaten down because a lot of people perceive it as very similar to Tyco in terms of an aggressive acquisition model. I would say that there are fairly significant differences, both by business segment and operationally in the way the companies are managed. I think there is probably close to 11 of earnings power per share in 2003 at SPX due to incremental cost-cutting activities this year. Remember that there are only 40 million shares, so the numbers that we’re talking about on a per share basis seem high versus the average company. The company has done a couple of large deals since 1998 that, each time, has doubled the size of the enterprise. About 30 businesses make up SPX. Where I’m getting the 11 is they’re incrementally taking down another 2,000 workers from this acquisition they made that was finalized in May of last year, United Dominion Industries, and that should lead to an incremental dollar in earnings per share. I’m at 10.3 for 2003, and I think you can see at least another 0.7 on top of that. So here’s a company trading at around a 13 forward multiple with what I would categorize as a GE-type management, and, in fact, several of the managers came from GE, and a business model that’s very early in its life cycle. SPX managers are also true operators. They have adopted a pure EVA approach to the way they run businesses that is increasingly focused on operating cash flow. This is positive because of the growing emphasis that is being put on cash flow and free cash generation. This year, SPX should convert 100% of its net income into free cash. Over time, as a cash-based metric, EVA should allow SPX’s cash returns to significantly exceed those of its peers on a sustained basis. So I think you have several pluses with this stock. They are not going to do any big acquisitions near term, but there are going to be lots of bolt-ons within many of their faster growing businesses, such as life sciences and medium-scale electric power. We have a 175 price target but, frankly, I believe it is going a lot higher over the coming years.

TWST: John, are there any specific end markets investors should avoid at this point?

Mr. Inch: We began the conversation noting that autos and housing looked peakish. And, for all I know, we’re in a housing bubble. I’m not in a position to call for a major housing contraction, and for that matter I’m not sure that one is imminent. Consumers have been able to benefit from lower mortgage rates and refinancing while the economy has begun to strengthen. In the auto sector the OEMs have been giving cars away at 0% financing. A flat assumption here may actually be too aggressive. As we mentioned before, commercial aerospace is the other large problem zone, although the defense aerospace business looks pretty good right now. There aren’t a lot of those properties (defense companies) to buy, which should keep those stocks robust near term. That’s not to say either that commercial aerospace is going to get worse; it probably gets better relative to expectations. The demand forecast was slashed by 20% relatively quickly. Today, measures like revenue passenger miles suggest a slow climb, but a climb nonetheless, off of those down expectations. All three of these sectors — housing, autos and aerospace — are collectively close to a third of the GDP of the sector. While that sounds like a lot, you generally never have all sectors moving together. Overall, recovery can still come because a lot of end markets, such as heavy trucks, machine tooling and lots of general industrial, are down from where they peaked in 1998 by 50% and higher.

This special issue includes:

1) Industrial Manufacturing - In an in-depth (10,700 words) Analyst Roundtable, Wendy D. Caplan, Managing Director at ABN AMRO, John G. Inch, Bear, Analyst at Stearns & Co., Inc. and Gregory M. Macosko, Senior Equity Analyst at Lord, Abbett & Co., examine the outlook for the sector including inventories, stock performance and share specific stock recommendations.

2) TWST confidential Off-The-Record survey of management performance of twelve sector firms asked market insiders about the ability of management teams to create shareholder value.

3) CEO interviews (average 2,500 words). Top management of sixteen sector firms examine the outlook for their firm and the sector.