Although big, well-known companies can be solid investments, most eventually reach a stage where earnings growth is no longer rapid enough for exciting stock returns. Take Coca-Cola Co. (NYSE: KO) for instance. The company’s good for a decent yield (about 2.9%) and far-below-average volatility. But at this point, it’s lucky to grow the bottom line at a high single-digit rate. Indeed, Coca-Cola’s earnings have risen an average of 8.5% in the past 10 years and analysts predict 8% growth in the next five years.

3M Co. (NYSE: MMM), which yields 2.4%, is another example. Earnings have climbed 9.5% in the past 10 years, but this growth rate is expected to slow considerably to 7% going forward.

Don’t get me wrong, Coca-Cola and 3M are strong companies and are still worthy of investment. But what large-cap investor wouldn’t be interested in the stock of a major firm that has a lot more pop left to it?

Glendale, Wis.-based Johnson Controls Inc. (NYSE: JCI) is one such firm.

The $27 billion company, founded 126 years ago, started out making the world’s first electric room thermostats. Currently, it’s a leader in three lines of business. The first is power solutions, where Johnson is a leading producer of lead-acid automotive batteries. It’s also a leader in building efficiency, as a provider of HVAC (heating, ventilation and air conditioning) and energy management products and services. Lastly, Johnson is a leader in designing and manufacturing interior products and systems for vehicles (such as floor consoles, overhead systems, etc).

Despite its advanced age, Johnson Controls has grown earnings by an average of 11.5% a year for the past 10 years. Analysts project even faster growth — nearly 16% — for the next five years.

Why’s this possible? It’s because the company really knows how to diversify.

The automotive business, for example, has profitable relationships with U.S. automakers such as Ford (NYSE: F), and with a wide range of foreign car manufacturers such as Tata Motors (NYSE: TTM) of India and Germany’s Volkswagen (OTC: VLKAY). On June 20, it acquired the reclining and specialty car seat business of German auto body and seat manufacturer Recaro GmbH & Co, which should give a further boost to business.

The power solutions division has about 13,000 service providers, which is twice as many as its nearest competitor. And it’s likely to need many more. This is because of briskly expanding market share in the commercial construction and renovation sectors, especially within foreign emerging markets. Johnson particularly focuses on businesses in China and the Middle East, which count on HVAC products and services to minimize energy costs and meet goals to reduce greenhouse gas emissions.

The power solutions segment is also investing heavily in lithium-ion batteries, which are quickly becoming the power source of choice in electric vehicles. They’re especially popular in China, where Johnson Controls has been a top player in the lithium-ion battery market for the past six years. The company is No. 1 in the start-stop battery market, which is projected to expand threefold by 2016 to about 25 million units, from about 7 million this year. Start-stop batteries help save fuel and reduce emissions by cutting a vehicle’s engine when it isn’t moving, like at red lights and in traffic jams, and starting it again when the driver hits the gas.

Johnson Controls is in solid financial shape and has no liquidity issues. Earnings are sufficient to cover interest expense more than two times over. The stock’s main risk right now is that nearly half of sales come from the highly cyclical auto industry.

Action to Take –> In the coming three to five years, this venerable firm is expected to post double-digit gains not only in earnings, but also cash flow (12%), dividends (15%) and book value (13%), showing that advanced age and large size don’t necessarily preclude strong growth. Analysts see the stock doubling, which I agree is possible, but perhaps a bit optimistic. A long-term return estimate in the 75% to 85% range is probably more realistic.

Although Johnson Controls is likely to outperform in the long haul, the stock may only track the market, or even lag a bit, in the short-term. The reason: reduced demand for auto-related products in Japan, where production has been disrupted due to the big earthquake and tsunami that hit the country in March. The effects of Japan’s damaged manufacturing sector will probably show up in the company’s third- and fourth-quarter results, but the negative impact should be a fading memory going into 2012.

– Tim BeganySource: StreetAuthority

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