Despite the surge in interest rates and widespread recessionary fears, demand for advanced equipment and solutions remains robust as industries rapidly embrace new methods of conducting business and try to increase efficiency.
Driven by factors such as increasing government initiatives like the Bipartisan Infrastructure Law, rapid globalization, increasing infrastructure construction in developing countries, and population growth as well as urban migration, the global construction equipment market is projected to grow at a CAGR of 6.6% to reach around $222.14 billion by 2028.
Moreover, the industry enjoys favorable investor sentiment, as evident from Industrial Select Sector SPDR Fund’s (XLI) 18% returns over the past six months, compared to S&P 500’s 3% returns.
Given the steady prospects of the industrial sector, fundamentally strong industrial stocks Caterpillar Inc. (CAT), Tennant Company (TNC), and Ryerson Holding Corporation (RYI) might be ideal additions to your watchlist right now.
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.”
While CAT’s annual dividend of $4.80 yields 1.86% on prevailing prices, it has a four-year average dividend yield of 2.46%. It has raised its dividend payouts for 29 consecutive years.
CAT’s total sales and revenues increased 20.9% year-over-year to $14.99 billion in the third quarter 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 ending December 2022 indicates a 49.2% improvement year-over-year. The consensus revenue estimate of $15.81 billion represents a 14.6% increase from the same quarter last 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 48.7% over the past six months and 13.9% over the past year to close its last trading session at $258.46.
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 distinct factors, with each factor weighted to an optimal degree.
It has a B grade for Sentiment. Within the B–rated Industrial-Machinery industry, it is ranked #13 out of the 80 stocks.
To see additional POWR Ratings for Value, Momentum, Quality, Growth, and Stability for CAT, click here.
Tennant Company (TNC)
TNC designs, manufactures, and markets floor-cleaning equipment worldwide. The company offers products, aftermarket parts and consumables, equipment maintenance and repair services, specialty surface coatings, and asset management solutions.
On October 26, TNC authorized a 6% increase in its quarterly cash dividend to $0.265 per share, which was payable on December 15, 2022.
Its annual dividend of $1.06 yields 1.57% on the current market prices. Over the past three years, TNC’s dividend payouts have grown at a 4.9% CAGR. The company has raised its dividend payouts for 50 consecutive years.
TNC’s net sales in the America region increased 4.4% year-over-year to $174 million in the fiscal third quarter ended September 30, 2022. Also, its gross profit came in at $100.70 million, while its net income per share amounted to $0.83.
Analysts expect TNC’s revenue for the fourth quarter ended December 2022 to be $289.07 million, indicating a 4.6% year-over-year growth. The company’s EPS for the same quarter is expected to increase 70.9% from the prior-year quarter to $1.21.
TNC has gained 16.1% over the past six months, closing the last trading session at $67.51.
It is no surprise that TNC has an overall B rating, which translates to Buy in our POWR Ratings system. It is ranked #19 in the same industry.
Beyond what we’ve stated above, we have also given TNC grades for Growth, Momentum, Value, Stability, Sentiment, and Value. Get all TNC ratings here.
Ryerson Holding Corporation (RYI)
RYI and its subsidiaries process and distribute industrial metals in the United States, Canada, Mexico, and China. It offers various products in carbon steel, stainless steel, alloy steel, aluminum, nickel, and red metals in different shapes and forms.
On November 1, 2022, RYI announced the acquisition of Excelsior, Inc, a full-service fabrication and machining company with advanced processing capabilities, including machining centers, laser and waterjet cutting, welding, and complex assemblies.
Steve Bosway, Ryerson’s President, West Region, said, “This acquisition strengthens RYI’s network of value-added service centers, allowing us to provide better experiences and an extended suite of metal processing solutions for customers in the Western United States.”
On November 2, 2022, RYI declared a quarterly cash dividend of $0.16 per share of common stock that was payable on December 15, 2022. Its current dividend of $0.54 yields 1.93% annually, higher than its four-year average dividend yield of 0.37%.
RYI reported net sales of 1.54 billion in the fiscal third quarter that ended September 30, 2022. Its net income increased by 10.2% year-over-year to $50 million, while its EPS increased by 15% year-over-year to $1.46.
Street expects RYI’s revenue to increase 10.2% year-over-year to $6.25 billion in the fiscal year ended December 2022. Its EPS is expected to increase 59.1% year-over-year to $11.87 in the same year. Additionally, RYI has topped the consensus EPS and revenue estimates in three of the trailing four quarters.
The stock has gained 49.5% over the past six months to close the last trading session at $33.12. It has gained 32.2% over the past year.
Its strong fundamentals are reflected in its POWR Ratings. RYI has an overall B rating, which translates to a Buy in our proprietary rating system.
RYI has an A grade for Value and a B grade for Quality. It is ranked #6 in the same industry.
In addition to the POWR Rating grades highlighted above, you can see RYI’s ratings for Growth, Momentum, Sentiment, and Stability here.
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CAT shares were trading at $258.46 per share on Monday morning, up $3.39 (+1.33%). Year-to-date, CAT has gained 7.89%, versus a 4.20% 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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