Despite widespread market headwinds, total industrial production in August increased 3.7% year-over-year. Moreover, the $1 trillion infrastructure bill is expected to drive significant growth in the industrial and manufacturing goods and services industry as the White House is ramping up efforts.
In addition, on September 15, 2022, the Biden-Harris Administration allotted $1.50 billion from the Infrastructure for Rebuilding America (INFRA) competitive grant program for highway, multimodal freight, and rail projects.
Such lucrative investments are expected to boost the industrial sector. The global construction equipment market size is projected to grow at a CAGR of 4.6% from 2022 to 2030.
Although the stock market has witnessed a significant sell-off this year amid macroeconomic issues, a top Morgan Stanley strategist believes the S&P 500 will snap back by the end of the year.
Given the backdrop, quality industrial stocks Parker-Hannifin Corporation (PH), Titan Machinery Inc. (TITN), and LSI Industries Inc. (LYTS) could be ideal buys ahead of the market recovery. However, FuelCell Energy, Inc. (FCEL) might be best avoided, considering its bleak fundamentals.
Stocks to Buy:
Parker-Hannifin Corporation (PH)
PH manufactures and sells motion and control technologies and systems worldwide for various mobile, industrial, and aerospace markets. The company operates through two segments, Diversified Industrial and Aerospace Systems.
On September 13, 2022, PH successfully acquired British air and defense services company Meggitt PLC (MEGGY) for about £6.30 billion ($6.96 billion). MEGGY’s advanced aerospace and defense technologies are expected to help PH to diversify its Aerospace Systems segment.
PH’s net sales came in at $4.19 billion for the fourth quarter, June 30, 2022, up 5.8% year-over-year. Moreover, the company’s total segment operating income came in at $876.35 million, up 10.9% year-over-year. Also, its total assets came in at $25.95 billion, up 27.5% year-over-year.
Street expects PH’s revenue to increase 3.2% year-over-year to $16.38 billion in 2023. It surpassed EPS estimates in each of the four trailing quarters. Its EPS is expected to increase by 8% per annum for the next five years. Over the past three months, the stock has gained 2.7% to close the last trading session at $250.43.
PH’s strong fundamentals are reflected in its POWR Ratings. The stock’s overall B rating translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
PH has a B grade for Sentiment. Within the Industrial – Equipment industry, it is ranked #31 out of 90 stocks.
Beyond what is stated above, we’ve also rated PH for Value, Quality, Stability, Momentum, and Growth. Get all PH ratings here.
Titan Machinery Inc. (TITN)
TITN owns and operates a network of full-service agricultural and construction equipment stores in the United States and Europe. It operates through three segments: Agriculture; Construction; and International.
On July 11, 2022, TITN signed a definitive purchase agreement to acquire Heartland Ag Systems, Heartland Solutions, and related affiliates, the largest Case IH Application Equipment distributorship in North America. This acquisition should be strategically beneficial for the company.
TITN’s total revenues came in at $496.54 million for the second quarter ended July 31, 2022, up 31.5% year-over-year. Its net income came in at $24.96 million, up 121.9% year-over-year, while its EPS came in at $1.10, up 120% year-over-year.
Analysts expect TITN’s revenue to increase 28.8% year-over-year to $2.20 billion in 2023. It surpassed EPS estimates in each of the four trailing quarters. Its EPS is expected to increase 33.2% year-over-year to $3.97 in 2023. Over the past three months, the stock has gained 15.9% to close the last trading session at $27.46.
TITN has an overall B rating, equating to a Buy in our POWR Ratings system. It also has a B grade for Growth, Value, Momentum, and Sentiment. The stock is ranked #18 in the same industry. We’ve also rated TITN for Stability and Quality. Get all TITN 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 August 18, 2022, James A. Clark, LYTS’ President and CEO, said, “Looking ahead, our solid backlog, combined with the benefits of recent investments in sales, marketing, and new products, all serve to position LSI for sustained growth entering fiscal 2023 and beyond.”
LYTS’ net sales came in at $127.47 million for the fourth quarter ended June 30, 2022, up 31.4% year-over-year. Its net income came in at $5.18 million, up 2514.1% year-over-year. Also, its EPS came in at $0.18, up 1700% year-over-year.
LYTS’ revenue is expected to increase 4.3% year-over-year to $474.76 million in 2023. It surpassed EPS estimates in three of four trailing quarters. Its EPS is expected to increase 7.8% year-over-year to $0.69 in 2023. Over the past three months, the stock has gained 32.8% to close the last trading session at $7.45.
LYTS’ POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our proprietary rating system. It also has a B grade for Growth, Value, and Quality. The stock is ranked first in the Industrial – Equipment industry.
We’ve also rated LYTS for Stability and Momentum. Get all LYTS ratings here.
Stock to Sell:
FuelCell Energy, Inc. (FCEL)
FCEL and its subsidiaries design, manufacture, sell, install, operate, and provide services to stationary fuel cell power plants for distributed baseload power generation.
FCEL’s gross loss came in at $7.31 million for the second quarter ended April 30, 2022, up 53.7% year-over-year. Its net loss came in at $31.01 million, up 57.3% year-over-year. In addition, its loss per share came in at $0.08, up 33.3% year-over-year.
Analysts expect FCEL’s EPS to decrease 20% year-over-year to a negative $0.06 for the quarter ending January 2023. Over the past six months, the stock has lost 44.2% to close the last trading session at $3.72.
FCEL’s poor prospects are also apparent in its POWR Ratings. The stock’s overall F rating equates to a Strong Sell in our POWR Ratings system. It also has an F grade for Sentiment, Stability, and Quality and a D for Value.
FCEL is ranked #84 in the Industrial – Equipment industry. Click here to access the additional POWR Ratings for FCEL (Growth and Momentum).
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PH shares were trading at $244.62 per share on Friday afternoon, down $5.81 (-2.32%). Year-to-date, PH has declined -22.11%, versus a -21.63% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries. More...
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