The industrial sector received a major setback last year as industrial activities practically came to a halt due to the COVID-19 pandemic. However, with the economy reopening this year thanks to an aggressive vaccination drive, industrial activities are increasing. Total industrial production increased 1.4% in March. The annualized growth in industrial production was 2.5% in the first quarter. And President Biden’s proposed $2 trillion infrastructure plan is expected to provide a further boost to the industrial sector.
Investors’ interest in the industrial stocks is evident from the Industrial Select Sector SPDR Fund’s (XLI) 24.3% gains over the past six months versus the SPDR S&P 500 Trust ETF’s (SPY) 19.6% returns.
Given this backdrop, we think it could be wise to bet on industrial stocks that possess strong financials but are still undervalued. And Hitachi Ltd. (HTHIY), Amada Co., Ltd. (AMDLY) and Belden Inc. (BDC) are solid picks on that front.
Hitachi Ltd. (HTHIY)
Headquartered in Tokyo, HTHIY provides information technology, energy, mobility, and smart life solutions in Japan and internationally. The company operates through eight segments: information & telecommunication systems, social & industrial systems, electronic systems & equipment, construction machinery, high functional materials, automotive systems, smart life & eco-friendly and others.
The company’s revenue from its energy segment was $7.27 billion for the nine months ended December 31, 2020, which represents a 207.6% year-over-year gain. Its EBIT increased 817.1% year-over-year to $4.84 billion. HTHIY’s net income was $3.02 billion, representing a 264.2% year-over-year increase. Its EPS increased 457.5% year-over-year to $3.06.
Analysts expect HTHIY’s EPS to improve 169.4% year-over-year for the quarter ended March 31, 2021 to $1.67. Its revenue estimate of $19.51 billion for the quarter ending June 30, 2021 represents a 32.2% increase year-over-year.
In terms of forward EV/S, the stock is currently trading at 0.84x, which is 80.5% lower than the industry average 4.30x. Its forward price/sales of 0.59x is 85.4% lower than the industry average 4.04x.
This week, HTHIY’s, Hitachi ABB Power Grids Ltd. and General Electric Co.’s (GE) entered a non-exclusive cross-licensing agreement in relation to the use of an alternative gas to sulfur hexafluoride (SF6), which is used in high voltage equipment. With world leaders taking measures to reduce greenhouse gas emissions, this move could bode well for the company. The stock has gained 74.1% over the past year and closed yesterday’s trading session at $93.99.
HTHIY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock has an A grade for Value, and a B grade for Growth and Stability. We’ve graded it for Momentum, Sentiment, and Quality also. Click here to access all HTHIY’s ratings.
HTHIY is ranked #16 of 90 stocks in the B-rated Industrial-Equipment industry.
Amada Co., Ltd. (AMDLY)
AMDLY develops, manufactures and sells metal processing equipment and metal machine tools, and provides related services. Its five major businesses include sheet metal machinery, cutting machine, grinding machine, stamping press, and micro welding.
For the nine months ended December 31, 2020, AMDLY’s total income increased nearly 4.7% year-over-year to ¥18.07 billion. The company’s cash flow from operations increased 72.8% to ¥33.79 billion.
AMDLY’s revenue is expected to increase 294.3% year-over-year to $2.20 billion in its fiscal year 2021, ended March 31, 2021. In terms of forward EV/S, the stock is currently trading at 1.49x, which is 25.5% lower than the industry average 2x. Its 9.39x forward EV/EBITDA is 29.3% lower than the industry average 13.29x. The stock has gained 53.1% over the past year.
AMDLY’s POWR ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our POWR Ratings system.
The stock has an A grade for Value, and a B grade for Quality and Stability. In addition to the POWR Rating grades we’ve just highlighted, one can see AMDLY’s ratings for Sentiment, Growth, and Momentum here.
AMDLY is ranked #27 of 87 stocks in the A-rated Industrial-Machinery industry.
Belden Inc. (BDC)
Formerly known as Belden CDT Inc., BDC is a signal transmission solutions company. It operates mainly through five segments— Broadcast Solutions, Enterprise Connectivity Solutions, Industrial Connectivity Solutions, Industrial IT Solutions, and Network Security Solutions. It serves distributors, original equipment manufacturers (OEMs), installers, and end-users, and has manufacturing facilities across the United States, Brazil, Canada, China, Japan, and Mexico, among others.
BDC’s $549.70 million in net sales for its fiscal year 2020 fourth quarter, ended December 31, 2020, represents a 10.3% year-over year rise. Its gross profit has increased 15.7% year-over-year to $202.80 million, while its operating income for the quarter came in at $43.40 million, up 2.2% year-over-year.
For the quarter ending June 30, 2021, analysts expect BDC’s EPS and revenue to increase 63% and 22.6%, respectively, year-over-year. Furthermore, it surpassed consensus EPS estimates in three of the trailing four quarters. In terms of forward EV/S, the stock is currently trading at 1.50x, which is 65.1% lower than the industry average 4.30x. Its forward price/sales of 0.94x is 76.7% lower than the industry average 4.04x.
BDC opened its first of five planned Customer Innovation Centers (CIC) in Stuttgart, Germany in April. The center provides an ecosystem for its customers to co-innovate with sales and product engineers to develop, test, document, and deploy proven solutions that drive efficiency, security and innovation. The centers are expected to enhance the company’s competitiveness in the market and provide an edge over its competitors regarding differentiated service delivery. The stock has gained 40.2% over the past year to close yesterday’s trading session at $42.70.
It’s no surprise that BDC has an overall B rating, which equates to Buy in our POWR Ratings system. The stock has an A grade for Value. Click here to see the additional POWR Ratings for BDC (Sentiment, Stability, Quality, Growth, and Momentum).
BDC is ranked #44 in the Industrial-Equipment industry.
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HTHIY shares were trading at $95.98 per share on Friday afternoon, up $2.00 (+2.12%). Year-to-date, HTHIY has gained 20.88%, versus a 12.00% rise in the benchmark S&P 500 index during the same period.
About the Author: Ananyo Guha Niyogi
Ananyo’s ardent interest in capital markets, wealth management, and financial regulatory issues, led him to a career as an investment analyst. His goal is to educate individual investors by making complex financial issues easy to understand. More...
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