While continued global supply chain disruptions, worker shortages, and skyrocketing material prices affect the industrial sector, investments in digital technologies and rising government spending should help companies grow.
Moreover, the rising demand for smart city projects that require significant construction equipment is driving growth in the Global Construction Equipment Market. The global construction equipment market is projected to grow at a CAGR of 6.6% to reach around $222.14 billion by 2028.
Also, the industry enjoys favorable investor sentiment, as evident from Industrial Select Sector SPDR Fund’s (XLI) 11.5% returns over the past six months, compared to the S&P 500’s 3.6% increase.
Given this backdrop, fundamentally strong and undervalued industrial stocks, Caterpillar Inc. (CAT), Powell Industries, Inc. (POWL), LSI Industries Inc. (LYTS), and Core Molding Technologies, Inc. (CMT) could be ideal additions to your watchlist in 2023.
Caterpillar Inc. (CAT)
CAT manufactures and sells construction and mining equipment, diesel and natural gas engines, and industrial gas turbines. The company operates through its five segments: Construction Industries; Resource Industries; Energy & Transportation; Financial Products; and All Others.
On January 6, 2022, CAT announced an investment in Lithos Energy, Inc., a battery technology company based in the United States that manufactures lithium-ion battery packs. CAT’s investment in Lithos further demonstrates the company’s commitment to supporting customers in the energy transition with lower-carbon advanced power technologies for its hybrid and full-electric machines and power generation products.
On December 15, 2022, CAT announced a collaboration with Luck Stone, the nation’s largest family-owned and operated producer of crushed stone, sand, and gravel.
Denise Johnson, President of Resource Industries at CAT, said, “CAT has a long-standing relationship with Luck Stone, and we look forward to working together to bring the demonstrated benefits of increased safety and productivity to the quarry industry.”
On December 14, CAT announced a dividend of $1.20 per share, payable on February 17, 2023.
CAT pays $4.80 as dividends annually, which translates to a 1.83% yield at the current price. This compares to the 4-year average dividend yield of 2.45%. Its dividend payments have grown at CAGRs of 6% and 8.7% over the past three years and five years, respectively. Also, it has paid dividends for thirty-three consecutive years.
The stock’s trailing 12-month P/E multiple of 19.05 is 5.7% lower than the 20.21 industry average.
CAT’s total revenues increased 20.9% year-over-year to $14.99 billion in the third quarter that ended September 30, 2022. Its profit attributable to common shareholders grew 43.1% from the year-ago value to $2.04 billion, while its profit per common share increased 48.8% from its year-ago value to $3.87.
The consensus EPS estimate of $4.01 for the fiscal fourth quarter that ended December 2022 indicates a 49.2% improvement year-over-year. The consensus revenue of 15.81 for the same quarter represents a rise of 14.6% year-over-year. Additionally, CAT has topped consensus EPS estimates in each of the trailing four quarters and consensus revenue in three of the trailing four quarters, which is impressive.
The stock has gained 44.6% over the past six months and closed its last trading session at $262.12. It has gained 9.3% over the past month.
CAT’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
CAT has been rated a B grade in Sentiment. Within the A–rated Industrial-Machinery industry, it is ranked #16 out of 81 stocks.
Click here to access additional POWR Ratings for Value, Momentum, Quality, Growth, and Stability for CAT,
Powell Industries, Inc. (POWL)
POWL designs, develops, manufactures, sells, and services custom-engineered equipment and systems to distribute, control, and monitor electrical energy. The company’s principal products include integrated power control room substations, custom-engineered modules, electrical houses, medium-voltage circuit breakers, monitoring and control communications systems, and motor control centers, among other services.
In terms of trailing-12-month PEG, POWL is trading at 0.02x, 95.3% lower than the industry average of 0.41x. Its forward Price/Sales multiple of 0.81 is 39.8% lower than the 1.35 industry average.
POWL’s revenues increased 25.7% year-over-year to $162.68 million in the fiscal fourth quarter that ended September 30, 2022. The company’s operating income increased 168.1% year-over-year to $10.36 million. Net income increased 168% year-over-year to $8.74 million, while its EPS came in at $0.73, representing an increase of 160.7% from the year-ago quarter.
POWL’s revenue is expected to rise 7.6% year-over-year to $573.13 million for the current fiscal year ending September 2023. The company’s EPS for the same period is expected to increase 185.7% year-over-year to $1.00. Additionally, POWL has topped consensus revenue estimates in three of the trailing four quarters.
Shares of POWL have gained 92.4% over the past nine months to close the last trading session at $39.29. It has also gained 10.3% over the past month.
POWL’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
The stock has an A grade for Growth and B grade for Value, Quality, and Sentiment. Within the Industrial-Machinery industry, it is ranked #2.
Beyond what is stated above, we’ve also rated POWL for Stability and Momentum. Get all POWL ratings here.
LSI Industries Inc. (LYTS)
LYTS produces and sells non-residential lighting and retail display solutions in the United States, Canada, Mexico, Australia, and Latin America. It operates in two segments: Lighting; and Display Solutions.
On January 10, LYTS announced that its turnkey solar installation at a Speedy Stop refueling and convenience store in Austin, Texas, generated significant consumer energy savings and carbon footprint reduction. On an annual basis, the system generates 170 megawatt-hours (MWh) of electricity.
James A. Clark, LYTS’ President and CEO, said, “This installation demonstrates LSI’s ability to provide innovative turnkey energy solutions while expanding our presence within other growing markets, including those well-aligned with our long-term plans.”
In November, LYTS declared a regular cash dividend of $0.05 per share, paid to shareholders on November 22, 2022. This reflects the company’s ability to pay back its shareholders.
LYTS’ forward EV/Sales multiple of 0.97 is 45.7% lower than the industry average of 1.78. Its forward Price/Sales multiple of 0.81 is 39.8% lower than the industry average of 1.35.
LYTS’ net sales rose 15.9% year-over-year to $128.80 million in the fiscal 2023 second quarter that ended December 31, 2022. Adjusted EBITDA rose 54% year-over-year to $12.98 million. The company’s adjusted net income came in at $7.63 million, up 79.8% from the prior-year quarter, while its adjusted EPS came in at $0.26, up 73.3% from the prior-year quarter.
Street EPS estimate of $0.78 for the current fiscal year ending June 2023 reflects a rise of 45.1% year-over-year. Its revenue estimate for the current year of $496.69 million indicates an improvement of 9.1% from the prior year. Additionally, LYTS has topped consensus revenue and EPS estimates in each of the trailing four quarters.
The stock has gained 157.8% over the past nine months to close the last trading session at $14.98. LYTS has gained 24% over the past month.
LYTS’ robust prospect is reflected in its POWR Ratings. The stock has an overall A rating, equating to Strong Buy in our proprietary rating system.
LYTS has an A grade for Sentiment and B grade for Growth, Value, and Quality. The stock is ranked first in the 91-stock B-rated Industrial – Equipment industry.
To see the additional POWR Ratings for LYTS for Momentum and Stability, click here.
Core Molding Technologies, Inc. (CMT)
CMT and its subsidiaries operate as molders of thermoplastic and thermoset structural products. The company offers a range of manufacturing processes.
CMT’s forward EV/Sales of 0.42x is 72.6% lower than the industry average of 1.55x. Its forward Price/Sales multiple of 0.34 is 72.2% lower than the industry average of 1.21.
CMT’s total net sales came in at $101.61 million for the third quarter ended September 30, 2022, up 25.4% year-over-year. Its net income came in at $1.32 million, compared to a loss of $3.31 million in the previous-year quarter. Moreover, its EPS came in at $0.16, compared to a loss per share of $0.41 in the same quarter the previous year.
Analysts expect CMT’s EPS for the fiscal year that ended December 2022 to be $1.03, indicating an 87.3% year-over-year growth. Its revenue is expected to be $368.53 million for the same year.
The stock has gained 73.3% over the past year and 16.9% over the past month, closing the last trading session at $14.73.
It is no surprise that CMT has an overall rating of A, which equates to a Strong Buy in our POWR Ratings system.
It has an A grade for Growth and Sentiment and a B for Value, Stability, and Quality. CMT is ranked #2 out of 36 stocks in the A-rated Industrial – Manufacturing industry.
In addition to the POWR Ratings stated above, we have also rated CMT for Momentum. Get all CMT ratings here.
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CAT shares were trading at $265.70 per share on Friday afternoon, up $3.58 (+1.37%). Year-to-date, CAT has gained 11.44%, versus a 6.47% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities. More...
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