Although the economy faces headwinds of high-interest rates, inflation, and a likely recession later this year, the industrial sector is expected to perform well, thanks to favorable government initiatives and technological developments. Therefore, investors could consider buying fundamentally strong industrial stocks TE Connectivity Ltd. (TEL) and Myers Industries, Inc. (MYE).
Before diving deeper into the fundamentals of these stocks, let’s discuss what’s happening in the industry.
The global pandemic and the subsequent supply chain disruptions showed the importance of shoring up domestic manufacturing. The U.S. government is trying to boost domestic manufacturing through various subsidies and initiatives linked to the Inflation Reduction Act and the CHIPS and Science Act.
Domestic manufacturing is expected to get a boost with over $185 billion earmarked to fund projects across the United States under the Biden administration’s bipartisan infrastructure law.
Moreover, industrial companies are increasingly investing in automation and technology and embracing emerging digital technologies. Adopting the latest technologies like artificial intelligence, 3D printing, and others are helping increase efficiency and productivity, which will drive higher profitability and help manufacturers gain a competitive edge.
The industrial machinery market is expected to grow at a CAGR of 6.7% to reach $708.30 billion by 2027. Moreover, investors’ interest in the industrial sector is evident from the Vanguard Industrials ETF’s (VIS) 9.2% returns over the past year.
Given these factors, investors could buy fundamentally strong stocks, TEL and MYE.
Let’s discuss the fundamentals of the featured stocks.
TE Connectivity Ltd. (TEL)
Based in Schaffhausen, Switzerland, TEL manufactures and sells connectivity and sensor solutions worldwide. The company operates through three segments: Transportation Solutions; Industrial Solutions; and Communications Solutions.
In terms of the trailing-12-month EBIT margin, TEL’s 16.94% is 270% higher than the 4.58% industry average. Its 12.95% trailing-12-month net income margin is 442.7% higher than the 2.39% industry average. Likewise, its 19.78% trailing-12-month Return on Common Equity is significantly higher than the industry average of 0.72%.
TEL’s net sales increased 3.8% year-over-year to $4.16 billion for the second quarter that ended March 31, 2023. The company’s adjusted operating income came in at $664 million. Additionally, its adjusted EPS from continuing operations came in at $1.65. Also, its free cash flow increased 37% year-to-date to $845 million.
TEL’s EPS and revenue for the quarter ending December 31, 2023, are expected to increase 11.1% and 5% year-over-year to $1.70 and $4.03 billion, respectively. It has a commendable earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. The stock has gained 4.9% year-to-date to close the last trading session at $120.46.
TEL’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #16 out of 36 stocks in the A-rated Industrial – Manufacturing industry. It has a B grade for Value. To access TEL’s grades for Growth, Momentum, Stability, Sentiment, and Quality, click here.
Myers Industries, Inc. (MYE)
MYE is an international manufacturing and distribution company engaged in the distribution of tire service supplies. It operates through The Material Handling and Distribution segments and sells its products under the Akro-Mils, Jamco, Ameri-Kart, and Trilogy Plastics brands, among others.
In terms of the trailing-12-month asset turnover ratio, MYE’s 1.66x is 122.7% higher than the 0.74x industry average. Its 31.83% trailing-12-month gross profit margin is 12.1% higher than the 28.39% industry average. Likewise, its 13.29% trailing-12-month Return on Total Capital is 115% higher than the industry average of 6.18%.
For the fiscal first quarter that ended March 31, 2023, MYE’s net cash provided by operating activities increased 253.6% year-over-year to $25.79 million. The company’s total assets came in at $556.20 million, compared to $542.63 million for the fiscal year ended December 31, 2022. Also, its adjusted net income and adjusted EPS came in at $13.99 million and $0.38, respectively.
Analysts expect MYE’s EPS and revenue for the quarter ending September 30, 2023, to increase 17.1% and 8.2% year-over-year to $0.48 and $246.72 million, respectively. In addition, MYE shows a commendable earning surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.
Over the past month, the stock has fallen 6.8% to close the last trading session at $19.09.
MYE’s POWR Ratings reflect this promising outlook. MYE has an overall rating of B, which translates to a Buy.
It is ranked #15 in the same industry. We have given MYE grades for Growth, Value, Momentum, Stability, Sentiment, and Quality. Get all MYE ratings here.
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TEL shares were trading at $121.74 per share on Monday afternoon, up $1.28 (+1.06%). Year-to-date, TEL has gained 6.49%, versus a 8.33% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions. More...
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