Despite being subjected to heightened geopolitical tensions and steep interest rates, the industrial sector displayed commendable resilience. The sector, serving as a pivotal element of the economy, is primed for sustained growth, driven by advancements in technology and increased governmental support.

Given this backdrop, fundamentally robust industrial stocks Vontier Corporation (VNT), Boise Cascade Company (BCC), and Franklin Electric Co., Inc. (FELE) could be solid portfolio additions now.

The industrial sector plays an integral role in fostering economic vitality, often serving as a gauge of the economy’s overall well-being. Poised on the cusp of substantial growth, this pivotal sector is set to be propelled by a remarkable global economic resurgence and swift industrialization.

As of July 2023, annual construction spending in manufacturing reached $201 billion, a 70% year-over-year increase and laying a robust foundation for anticipated expansion in 2024. Moreover, the expansion of construction activities has facilitated the growth of the wood manufacturing sector. The industry is strategically poised for sustained progress in the future.

The imminent influx of ground-breaking technology promises unprecedented advancements within the industrial realm. These innovative tech solutions, including smart factories, are set to overhaul traditional manufacturing floor operations and methods. Additionally, predictive maintenance and digital twin technologies are enhancing the decision-making framework for manufacturers, offering improved insights.

The evolution of technology like artificial intelligence (AI), machine learning, and advanced data analytics tools is driving an increase in industrial productivity and operational efficiency. Incorporating AI-driven decisions in various arenas, such as inventory management, production line evaluation, supply chain coordination, and quality checks, has become increasingly popular.

Moreover, hundreds of billions of dollars in federal funding and other incentives are targeting key areas like infrastructure, onshoring/reshoring initiatives, climate change mitigation, and electrification through legislation such as the Bipartisan Infrastructure Law. Such significant capital injection could catalyze long-term growth and prosperity within the industrial sector.

The global industrial machinery market is projected to reach $1.04 trillion by 2032, growing at a CAGR of 5.3%.

Reinforcing the optimistic market outlook, the recent 7.9% uptick over the past three months in the Industrial Select Sector SPDR Fund (XLI) demonstrates the increasing investor appetite for industrial equities.

Considering these conducive trends, let’s take a look at the fundamentals of the three Industrial stocks.

Vontier Corporation (VNT)

VNT engages in the research and development, manufacture, sale, and distribution of technical equipment, components, software, and services for manufacturing, repairing, and servicing in the mobility ecosystem worldwide.

On December 21, 2023, VNT paid stockholders a quarterly cash dividend of $0.03 per share. Its annualized dividend of $0.10 per share translates to a dividend yield of 0.29% on the current share price. Its four-year average yield is 0.26%.

During the third quarter that ended September 29, 2023, VNT repurchased 0.4 million shares for $12 million and repaid $75 million in debt.

VNT’s trailing-12-month cash from operations of $471.50 million is 510.2% higher than the industry average of $77.27 million. Its trailing-12-month ROCE and ROTA of 53.85% and 8.02% are significantly higher than the industry averages of 1.27% and 0.38%, respectively.

For the fiscal third quarter that ended September 29, 2023, VNT’s sales and adjusted operating profit stood at $765.40 million and $169.10 million, respectively. Moreover, its adjusted free cash flow increased 48.1% year-over-year to $128.40 million.

For the same quarter, its adjusted net earnings and adjusted net earnings per share stood at $113.40 million and $0.73, respectively. As of September 29, 2023, total current liabilities stood at $867.70 million, compared to $929.90 million as of December 31, 2022.

Street expects VNT’s revenue and EPS for the fiscal fourth quarter of 2023 (ended December 2023) to be $779.77 million and $0.78, respectively. The company surpassed consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.

The stock has gained 56% over the past year to close the last trading session at $34.11. Over the past nine months, it has gained 26.5%.

VNT’s POWR Ratings reflect its positive prospects. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a B grade for Value, Sentiment, and Quality. Within the Industrial – Equipment industry, it is ranked first out of 91 stocks.

To see additional POWR Ratings for Growth, Momentum, and Stability for VNT, click here.

Boise Cascade Company (BCC)

BCC engages in the manufacture of wood products and the distribution of building materials in the U.S. and Canada. It operates through the Wood Products and Building Materials Distribution segments.

On December 15, 2023, BCC paid stockholders a quarterly dividend of $0.20 per share, as well as a special dividend of $5 per share on its common stock. Its annualized dividend of $0.80 per share translates to a dividend yield of 0.61% on the current share price.

Its four-year average yield is 6.68%. BCC’s dividend payments have grown at CAGRs of 20.5% and 18.5% over the past three and five years, respectively.

For the nine months ended September 30, 2023, the company paid common stock dividends of $140.90 million. Moreover, as of September 30, 2023, approximately 2 million shares were available for repurchase under its existing share repurchase program.

BCC’s trailing-12-month cash per share of $32.15 is significantly higher than the industry average of $2.11. Its trailing-12-month net income and levered FCF margins of 7.38% and 6.82% are 20.7% and 12.9% higher than the industry averages of 6.12% and 6.04%, respectively.

For the fiscal third quarter that ended September 30, 2023, BCC’s sales and income from operations stood at $1.83 billion and $185.63 million, respectively. Moreover, its adjusted EBITDA stood at $216.47 million.

For the same quarter, its net income and net income per common share stood at $143.07 million and $3.58, respectively. As of September 30, 2023, BCC’s total current assets stood at $2.47 billion, compared to $2.06 billion as of December 31, 2022.

Street expects BCC’s revenue for the fiscal fourth quarter of 2023 (ended December 2023) to increase marginally year-over-year to $1.63 billion. Its EPS is expected to be $2.46 for the same quarter. The company surpassed consensus EPS estimates in each of the trailing four quarters.

The stock has gained 119.1% over the past nine months to close the last trading session at $131.60. Over the past year, it has gained 102.7%.

BCC’s robust prospects are reflected in its POWR Ratings. The stock has an overall B rating, equating to Buy in our proprietary rating system.

BCC has an A grade for Momentum and a B for Value and Quality. It is ranked #2 out of 6 stocks within the Industrial – Wood industry.

Click here for the additional POWR Ratings for BCC (Growth, Stability, and Sentiment).

Franklin Electric Co., Inc. (FELE)

FELE designs, manufactures, and distributes water and fuel pumping systems worldwide. It operates through three segments: Water Systems; Fueling Systems; and Distribution.

On January 2, FELE’s wholly owned subsidiary, Headwater Companies, LLC, acquired substantially all the assets of LCA Pump, LLC, a Missouri limited liability company, on December 31, 2023, which operates Water Works Pump. Water Works is a professional groundwater distributor in Springfield, MO, and will operate as a branch of Headwater Wholesale, LLC, a subsidiary of Headwater Companies.

The addition of Water Works aligns with Headwater’s dedication to extending its reach, ensuring exceptional service, and reinforcing support for contractors and drillers in the Midwest. This strategic move marks Headwater’s inaugural venture into the Missouri market, aligning with its overarching goal of becoming the leading distributor of water systems solutions in the U.S.

In December 2023, FELE’s wholly owned subsidiary, Franklin Water Treatment, LLC, acquired the assets of Action Manufacturing & Supply, Inc., a manufacturer and wholesale distributor of residential water conditioning, filtration, and indoor/outdoor aeration systems in Florida and North Carolina.

Action’s commitment to quality and reputation for service excellence aligns with FELE’s customer-driven approach to its businesses.

On November 16, FELE paid a quarterly dividend of $0.225 per share to the shareholders. Its annualized dividend of $0.90 per share translates to a dividend yield of 0.96% on the current share price.

Its four-year average yield is 0.93%. FELE’s dividend payments have grown at CAGRs of 13.2% and 14% over the past three and five years, respectively.

FELE’s trailing-12-month asset turnover ratio of 1.21x is 49.4% higher than the industry average of 0.81x. Its trailing-12-month net income and levered FCF margins of 9.33% and 9.54% are 52.6% and 57.9% higher than the industry averages of 6.12% and 6.04%, respectively.

For the fiscal third quarter that ended September 30, 2023, FELE’s net sales and gross profit stood at $538.43 million and $186.25 million, respectively. For the same quarter, net income attributable to FELE and earnings per share stood at $57.80 million and $1.23, respectively.

For the nine months that ended September 30, 2023, its cash and cash equivalents at end of period increased 58.2% from the year-ago period to $62.51 million. As of September 30, 2023, its total current assets stood at $899.50 million, compared to $858.09 million as of December 31, 2022.

Street expects FELE’s revenue for the fiscal fourth quarter of 2023 (ended December 2023) to increase marginally year-over-year to $491.33 million. Its EPS is expected to be $0.84 for the same quarter.

The stock has gained 8.4% over the past year to close the last trading session at $93.74. Over the past three months, it has gained 6.4%.

FELE’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system.

FELE has a B grade for Stability and Quality. Within the B-rated Industrial – Manufacturing industry, it is ranked #4 out of 35 stocks.

Beyond what we’ve stated above, we have also rated the stock for Growth, Value, Momentum, and Sentiment. Get all ratings of FELE here.

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VNT shares were unchanged in premarket trading Wednesday. Year-to-date, VNT has declined -1.27%, versus a -0.08% rise in the benchmark S&P 500 index during the same period.

About the Author: Sristi Suman Jayaswal

The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors. More...

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