3 High-Quality Stocks in the Industrial Sector to Buy at a Discount

NYSE: AOS | A.O. Smith Corporation  News, Ratings, and Charts

AOS – The industrial sector was impacted severely by COVID-19-pandemic-induced supply chain disruptions and productivity losses. But on the efforts made by the Biden administration to ease supply chain constraints, and with economic activities picking up, industrial production growth and capacity utilization should improve. Against this backdrop, we think the stocks of high-quality industrial companies A. O. Smith (AOS), Kennametal (KMT), and Carrier Global (CARR), which are currently trading discounts, could be solid bets now. Read on.

The COVID-19 pandemic posed myriad challenges for the industrial sector, disrupting supply chains and productivity. However, the solid progress on the vaccination front and economic activities regaining traction are helping the industrial sector to generate stable growth. Total industrial production in the last month increased 1.1%, marking the fourth consecutive month of gains of 0.8% or greater. Total industrial production in April was 6.4% above its year-ago level; manufacturing output was up 0.8%, while capacity utilization climbed to 79%.

In addition, acceleration in the adoption of digital technology, the remaking of supply chains, and advancing sustainability practices are all expected to bolster the sector’s growth. Also, major funding by the Biden administration to ease supply chain constraints should drive productivity growth.

Given this backdrop, we think the stocks of high-quality industrial companies A. O. Smith Corporation (AOS), Kennametal Inc. (KMT), and Carrier Global Corporation (CARR), which are currently trading at discounts, could be solid additions to one’s portfolio.

Click here to check out our Industrial Sector Report for 2022

  1. O. Smith Corporation (AOS)

AOS in Milwaukee, Wisc., manufactures and markets residential and commercial gas, heat pumps, electric water heaters, boilers, tanks, and water treatment products. It operates through two segments, North America: and the Rest of the World.

In terms of its forward EV/Sales, AOS is currently trading at 2.24x, which is 42.1% lower than the 1.57x industry average. Its 2.26 forward Price/Sales multiple is 78.9% lower than the 1.26 industry average.

AOS’ net sales increased 27.1% from the prior-year quarter to $977.70 million in its fiscal first quarter, ended March 31, 2022. Its non-GAAP net earnings for the quarter came in at $122 million, reflecting a 28% increase of 28% year-over-year, while the non-GAAP EPS stood at $0.77, up 30.5% year-over-year.

The $0.83 consensus EPS estimate for the fiscal second quarter ending June 30, 2022, represents a 13.5% improvement year-over-year. The $979.78 million consensus revenue estimate for the same quarter represents a 14% increase from the same period last year. It has an impressive earnings surprise history; it topped the Street’s EPS estimates in each of the trailing four quarters.

AOS has slumped 31.3% in price year-to-date to close the last trading session at $58.98.

AOS’ fundamentals are reflected in its POWR Ratings. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree. AOS an A grade in Quality. It is ranked #31 of 78 stocks in the B-rated Industrial – Machinery industry.

Beyond what is stated above, we have also rated AOS for Value, Momentum, Stability, Sentiment, and Growth. Get all the AOS ratings here.

Kennametal Inc. (KMT)

KMT in Latrobe, Pa., is an industrial technology provider that serves customers across the aerospace, earthworks, energy, general engineering, and transportation end markets. The company operates through two segments Metal Cutting and Infrastructure.

In terms of its forward EV/EBIT, KMT is currently trading at 12.56x, which is 13.2% lower than the 14.47x industry average. Its 1.07 forward Price/Sales multiple is 15.5% lower than the 1.26 industry average.

KMT’s sales have increased 5.7% year-over-year to $512.26 million in its fiscal quarter ended March 31, 2022. Its operating income grew 35% from its year-ago value to $53.36 million. The company’s net income increased 60.4% year-over-year to $36.88 million. Also, its EPS came in at $0.42, up 61.5% from the prior-year quarter.

The Street expects KMT’s EPS for its fiscal year ending June 30, 2022, to improve 66.5% year-over-year to $1.73. The $2.01 billion consensus revenue estimate for the same period represents a 9.1% increase year-over-year. The company also surpassed the consensus EPS estimates in three of the trailing four quarters.

KMT’s shares have slumped 4% in price over the past month to close the last trading session at $25.93.

KMT’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our POWR Ratings system.

The company also has a B grade in Value and Quality. Among 37 stocks in the A-rated Industrial – Manufacturing industry, KMT is ranked #17. To get KMT’s ratings for Growth, Momentum, Stability, and Sentiment, click here.

Carrier Global Corporation (CARR)

CARR provides heating, ventilation, and air conditioning (HVAC), refrigeration, fire, and security solutions. It operates through three segments HVAC; Refrigeration; and Fire & Security. CARR is headquartered in Palm Beach, Fla.

On February 17, 2022, CARR created Carrier Ventures, a new global venture capital group focused on investments to accelerate the development of sustainable innovations and disruptive technologies, enabling the future of building and cold chain management. This initiative should help the company bring new technologies and solutions to market and meet the goal of reducing carbon footprints by more than one gigaton by 2030.

In terms of its forward EV/Sales, CARR is currently trading at 2x, which is 26.8% lower than the 1.57x industry average. Its 12.53 forward EV/EBITDA multiple is 24% lower than the 10.11 industry average.

For the fiscal quarter ended March 31, 2022, CARR’s product sales increased 7.9% year-over-year to $4.17 billion. Its operating profit grew 204.2% from its year-ago value to $1.74 billion. Its net income from operations stood at $1.39 billion, reflecting a 253.8% increase year-over-year. Furthermore, its EPS was $1.58, up 267.4% from the prior-year quarter.

Analysts expect CARR’s revenue for the fiscal year ending Dec. 31, 2023, to come in at $21.09 billion, indicating a 5.6% increase year-over-year. The company’s EPS is expected to grow 12.7% year-over-year to $2.58 billion in the same year.

The stock has slumped 26.5% in price year-to-date to close the last trading session at $39.86.

It is no surprise that CARR has an overall B rating, which equates to Buy in our POWR Ratings system. The stock also has a B grade in Value and Quality. CARR is ranked #6 in the B-rated Industrial – Building Materials industry.

In addition to the POWR Rating grades I have just highlighted, one can see the CARR’s growth, Momentum, Stability, and sentiment ratings here.

Click here to check out our Industrial Sector Report for 2022


AOS shares were trading at $60.47 per share on Tuesday afternoon, up $1.49 (+2.53%). Year-to-date, AOS has declined -28.99%, versus a -14.09% rise in the benchmark S&P 500 index during the same period.


About the Author: Komal Bhattar


Komal's passion for the stock market and financial analysis led her to pursue investment research as a career. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities. More...


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