The industrial sector is struggling with supply chain issues, rising inflation, and labor shortages. However, increasing federal funding and technological advancements will boost innovation and support the sector’s growth.
Investors looking to capitalize on the sector’s long-term prospects can consider investing in fundamentally sound industrial stocks Caterpillar Inc. (CAT), General Electric Company (GE), and Myers Industries, Inc. (MYE).
Advanced technologies like, AI, big data analytics, and industrial internet of things (IIoT) are rapidly being employed to boost productivity, cut operating costs, and increase margins. The global industrial IoT market is expected to grow at a CAGR of 6.9% by 2028.
Moreover, the industrial machinery market is projected to grow at a CAGR of 9.5%, reaching $569.37 billion by 2028.
In addition, the Bipartisan Infrastructure Bill has already delivered $185 billion in funding for the start of over 6,900 projects, including 2,800 bridge repair and replacement projects, following more than a year of implementation. The bill is expected to increase demand for industrial goods through various projects across the country.
Investors’ interest in the industrial sector is evident from the Vanguard Industrials ETF (VIS) 9% returns over the past six months.
So, CAT, GE, and MYE could be the best industrial stocks to own now.
Caterpillar Inc. (CAT)
CAT manufactures construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives. Its segments include Construction Industries; Resource Industries; Energy & Transportation; Financial Products; and All Other.
CAT’s forward P/E of 16.24x is 15.6% lower than the industry average of 19.24x. Its forward EV/EBIT of 15.63x is 2.7% lower than the industry average of 15.22x.
Its trailing-12-month EBITDA margin of 20.02% is 51.5% higher than the industry average of 13.21%, while its trailing-12-month net income margin of 11.28% is 72.4% higher than the industry average of 6.54%.
CAT’s total sales and revenues came in at $16.60 billion for the quarter that ended December 31, 2022, up 20.3% year-over-year. Its adjusted profit increased 37.9% year-over-year to $2.01 billion, while its adjusted EPS increased 43.5% year-over-year to $3.86.
CAT’s revenue is expected to increase by 7.1% year-over-year to $63.67 billion in 2023. Its EPS is expected to grow 11.8% year-over-year to $15.92 in 2023. It surpassed EPS estimates in all four trailing quarters. CAT’s shares have gained 35.8% over the past six months to close the last trading session at $248.72.
CAT’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
CAT has a B grade for Growth and Momentum. Within the A-rated Industrial – Machinery industry, it is ranked #20 out of 79 stocks. Click here for the additional POWR Ratings for Value, Stability, Sentiment, and Quality for CAT.
General Electric Company (GE)
GE operates as a high-tech international industrial company. It offers gas and steam turbines, a full balance of plant, upgrade, and service solutions, as well as data-leveraging software for power generation, industrial, government, and other customers.
On February 7, 2023, GE Digital announced a multi-year strategic collaboration agreement with Amazon Web Services, Inc. (AWS) to assist utilities in accelerating grid modernisation.
Mahesh Sudhakaran, General Manager of Grid Software, said, “This collaboration brings together GE Digital’s GridOS hybrid cloud software capabilities with the expertise and infrastructure support of AWS to help utilities transform their operations and meet their goal of providing reliable, affordable, and clean energy.”
GE’s trailing-12-month EV/Sales of 1.42x is 17.5% lower than the industry average of 1.72x. Its trailing-12-month Price/Sales of 1.25x is 8.9% lower than the industry average of 1.37x.
Its trailing-12-month levered FCF margin of 5.05% is 33.9% higher than the industry average of 3.77%.
For the fiscal fourth quarter that ended December 31, 2022, GE’s total revenues came in at $21.78 billion, up 7% year-over-year. The company’s adjusted earnings increased 51.8% year-over-year to $1.36 billion. Also, its adjusted EPS came in at $1.24, representing a 51.2% increase from the prior-year period.
The consensus revenue estimate of $66.39 billion for the fiscal year 2024 indicates a 7.9% increase year-over-year. Its EPS is expected to grow 79.9% year-over-year to $3.49 in 2024. It surpassed EPS estimates in three of four trailing quarters. Over the past six months, the stock has gained 44.5% to close the last trading session at $86.98.
GE’s robust prospects are reflected in its POWR Ratings. The stock has an overall rating of B, translating to a Buy in our proprietary rating system. It has a B grade for Growth and Momentum.
GE is ranked #9 out of 34 stocks in the A-rated Industrial – Manufacturing industry. For additional POWR Ratings for Value, Stability, Sentiment, and Quality for GE, click here.
Myers Industries, Inc. (MYE)
MYE is involved in manufacturing and distribution internationally. The company operates through two segments: Material Handling and Distribution.
MYE’s forward EV/Sales of 0.95x is 37.5% lower than the industry average of 1.52x. Its forward Price/Sales of 0.83x is 31.2% lower than the industry average of 1.21x.
MYE’s trailing-12-month ROCE of 25.88% is 106.6% higher than the industry average of 12.52%. Its trailing-12-month ROTA of 14.42% is 103.6% higher than the industry average of 7.08%.
MYE’s net sales came in at $212.84 million for the fourth quarter that ended December 31, 2022, up 6.6% year-over-year. Its adjusted EBITDA grew 25.6% year-over-year to $22.10 million. Its net income increased 41% year-over-year to $11.80 million. In addition, its EPS increased 39.1% year-over-year to $0.32.
Street expects MYE’s revenue to increase 5.2% year-over-year to $976.25 million in 2024. Its EPS is estimated to increase by 10% year-over-year to $1.87 in 2024. It surpassed EPS estimates in all four trailing quarters. Over the past year, the stock has gained 31.5% to close the last trading session at $21.07.
MYE’s strong fundamentals are reflected in its POWR Ratings. It has an overall B rating, which indicates a Buy in our proprietary rating system. It also has a B for Quality.
MYE is ranked #10 in the same industry. To see additional POWR Ratings for Stability, Value, Sentiment, Momentum, and Growth for MYE, click here.
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CAT shares were trading at $247.96 per share on Thursday morning, down $0.76 (-0.31%). Year-to-date, CAT has gained 4.00%, versus a 4.45% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions. More...
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