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Adding to an Undervalued Industrial

Economic reports are validating the sector, and this stock trades at a discount to its peers.
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Three pieces of economic data this morning have pushed the markets higher, along with likely short-covering. The October Institute of Supply Management Manufacturing Index came in at 55.7 vs. the 53 expectation and the 52.6 read in September. Anything over 50 means the economy is expanding, so this is clearly a positive read this morning, and it means that production is catching up to earlier order increases and that inventories are being replenished.

Also, the index of pending home sales rose further in September and is now 37% higher than the lows we saw in January. Clearly, the tax incentives are having a positive impact, but the stabilized credit environment has also likely helped. The point is that there is real demand, with a 6.1% reading vs. a flat expectation.

And finally, the September read on construction spending was ahead of plan, up 0.8% vs. a drop of 0.2% expected (although somewhat muted with the August downward revision). Also, the dollar is down, and that has recently been inversely correlated to the markets, giving support to the averages.

I'm not going to chase the market today, but the strong manufacturing report is a plus for the industrial companies that I own -- Emerson (EMR) , Honeywell (HON) , Cooper Industries (CBE) and Johnson Controls (JCI) . I'll look to add to all four on any weakness. Also, CBE was upgraded this morning at Morgan Stanley by one of the most bearish analysts on the name ¿ obviously, I couldn't agree more.

So overall, the news is good today, but Weatherford (WFT) continues to lag the market and the group. After you have received this Alert, I'll add 100 shares at around $17.66. The stock has fallen 23% since Sept. 22, after reporting a disappointing quarter, and I like the long-term risk/reward. I own this stock for its international exposure and the above-average growth it will produce from this region -- the company says 30%, or 3 times stronger than the market.

WFT has the most leverage to the Brazilian and Middle Eastern markets and is shovel-ready in Iraq with a two-year lead time vs. its competitors. As the environment improves and activity increases due to the higher commodity prices, margins should expand off the very depressed levels. The stock trades at a 30% discount to Schlumberger (SLB) and a 19% to Halliburton (HAL) , which seems excessive to me, especially given the above-average international growth prospects. After my trade, I will own 1,700 shares, or 1.04% of the portfolio.

Regards,

Jim Cramer

Click here to trade alongside Cramer!http://www.thestreet.com/staticFull/aap-td-ct-offer_alert.html

DISCLOSURE: At the time of publication, Cramer was long CBE, EMR, HON, JCI and WFT.