Despite headwinds and recessionary fears looming, the soaring demand for innovative machines and solutions could bode well for the industrial sector. In this backdrop, let us take a closer look at industrial stocks General Electric Company (GE), Tennant Company (TNC), and Core Molding Technologies, Inc. (CMT), which are expected to maintain their upward trajectory in the near term, for reasons mentioned in this article.
Post the global pandemic, the industrial sector demonstrated persistent growth in the past two years. However, there have been concerns and anticipations that the industrial sector might face disruptions owing to high costs, workforce shortages, supply chain constraints, interest rate hikes, and a slowdown in exports.
A manufacturing downturn could be an early indicator of recession, although it accounts for a relatively small share of GDP. Jonathan Millar, the senior U.S. economist at Barclays PLC (BCS), commented, “As the Fed continues to hike, manufacturing is going to be in the crosshairs. It’s hard to see this sector not suffer some sort of a downturn that is more significant than what we’ve seen already.”
However, on the bright side, the Industrial Production Index of the United States came in at 103, indicating a positive production performance. In addition, government initiatives could boost the industrial sector’s growth prospects.
The Bipartisan Infrastructure Law has provided more than $185 billion in funding for over 6,900 projects, including 2,800 bridge repair and replacement projects. Moreover, on the backs of the adoption of the fourth industrial revolution, the global industrial automation market is expected to grow at a CAGR of 10.5% from 2023 to 2030.
Furthermore, over the past six months, Industrial Select Sector SPDR Fund (XLI) has gained 6.7%, outpacing S&P 500, which plunged 3.8%. This substantiates investors’ interest in industrial stocks.
Given this backdrop, quality industrial stocks GE, TNC, and CMT might be wise portfolio additions in 2023.
General Electric Company (GE)
GE operates as a high-tech international industrial company. It offers gas and steam turbines, a full balance of plant, upgrade, service solutions, and data-leveraging software for power generation, industrial, government, and other customers.
On March 7, 2023, GE announced a new order for its first High-Efficiency (HE) upgrade for the GT26 fleet to be selected in Australia. In 2024, GE will modernize EnergyAustralia's Tallawarra A power plant, powered by a GT26 gas turbine installed nearly thirteen years ago.
On February 7, 2023, GE Digital announced a multi-year strategic collaboration agreement with Amazon Web Services, Inc. (AWS) to assist utilities in accelerating grid modernization.
Mahesh Sudhakaran, General Manager of Grid Software, said, “This collaboration brings together GE Digital’s GridOS hybrid cloud software capabilities with the expertise and infrastructure support of AWS to help utilities transform their operations and meet their goal of providing reliable, affordable, and clean energy.”
GE’s trailing-12-month EV/Sales of 1.48x is 11.5% lower than the industry average of 1.67x. Its trailing-12-month Price/Sales of 1.30x is 1.7% lower than the industry average of 1.32x.
Its trailing-12-month levered FCF margin of 5.05% is 28% higher than the industry average of 3.94%.
For the fiscal fourth quarter that ended December 31, 2022, GE’s total revenues came in at $21.79 billion, up 7.3% year-over-year. The company’s adjusted earnings increased 51.8% year-over-year to $1.36 billion. Also, its adjusted EPS came in at $1.24, representing a 51.2% increase from the prior-year period.
The consensus EPS estimate of $0.44 for the fiscal third quarter ending September 2023 indicates a 26.4% increase year-over-year. Its revenue is expected to come at $15.83 billion for the same quarter. It surpassed revenue estimates in three of four trailing quarters.
Over the past six months and three months, the stock has gained 60.9% and 37.5%, respectively, to close the last trading session at $88.97.
GE’s robust prospects are reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
GE has a B grade for Growth, Momentum, and Sentiment. It is ranked #8 out of 34 stocks in the A-rated Industrial – Manufacturing industry.
For additional POWR Ratings for Value, Stability, and Quality for GE, click here.
Tennant Company (TNC)
TNC and its subsidiaries design, manufacture, and market floor cleaning equipment in the Americas, Europe, the Middle East, Africa, and the Asia Pacific.
On February 14, 2023, TNC declared a regular quarterly cash dividend of $0.265 per share, payable to the shareholders on March 15, 2023. This reflects its shareholder payback ability.
TNC’s forward EV/Sales of 1.32x is 12.1% lower than the industry average of 1.67x. Its forward Price/Sales of 1.10x is 18.2% lower than the industry average of 1.34x.
Its trailing-12-month gross profit margin of 38.56% is 32.8% higher than the industry average of 29.03%. Its trailing-12-month ROCE of 14.66% is 6% higher than the industry average of 13.84%.
TNC’s net sales came in at $291 million for the fourth quarter that ended December 31, 2022, up 5.3% year-over-year. Its adjusted net income increased 101.5% year-over-year to $27.20 million. Moreover, its adjusted net income per share came in at $1.46, representing a 105.6% year-over-year rise.
Street expects TNC’s revenue to increase 5.6% year-over-year to $272.53 million in the fiscal first quarter ending March 2023. Its EPS is expected to increase by 14.6% year-over-year to $0.84 for the same quarter.
Over the past six months, the stock has gained 8.7% to close the last trading session at $65. It has gained 3.1% over the past three months.
It is no surprise that TNC has an overall A rating, equating to a Strong Buy in our POWR Ratings system.
Also, the stock has a B grade for Growth, Value, Momentum, and Quality. Within the A-rated 79 stock Industrial - Machinery industry, it is ranked #6.
Get additional POWR Ratings for TNC (Stability and Sentiment) here.
Core Molding Technologies, Inc. (CMT)
CMT is a provider of engineered materials. It specializes in molded structural components, primarily for the building products, utilities, transportation, and power sports industries in North America and Mexico. Molders of structural thermoplastic and thermoset products make up CMT’s sole operating segment.
On November 8, 2022, David Duvall, the company’s President and Chief Executive Officer, said, “Major programs continue to ramp up this year, and net new wins are on track totaling $24 million. We are also delighted to have signed a new agreement with UFP Industries, Inc. (UFPI), which extends our relationship for another 5 years.”
CMT continues to prioritize long-term relationships with large, blue-chip organizations such as UFPI, in addition to its mission of providing value-added solutions to various key industries.
CMT’s forward EV/Sales of 0.44x is 70.5% lower than the industry average of 1.48x. Its forward Price/Sales of 0.35x is 69.1% lower than the industry average of 1.13x. Also, forward EV/EBITDA of 5.10x is 29.8% lower than the industry average of 7.26x.
For the fiscal fourth quarter that ended December 31, 2022, CMT’s total net sales increased 18.1% year-over-year to $86.44 million, and its gross margin grew 36.2% year-over-year to $11.55 million. Its adjusted EBITDA rose 22.6% year-over-year to $6.06 million.
Moreover, the company’s net income and net income per share rose significantly year-over-year to $4.83 million and $0.57, respectively.
The consensus revenue and EPS estimate of $373.75 million and $1.35 for the fiscal year ending December 2023 indicate 1.4% and 31.1% year-over-year improvements, respectively. Furthermore, CMT surpassed its consensus EPS in all three trailing quarters.
Shares of CMT have gained 31.7% over the past six months and 45.7% over the past three months to close the last trading session at $15.15.
CMT’s POWR Ratings reflect its solid prospects. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
The stock has an A grade for Growth and Sentiment and a B for Value. Within the Industrial – Manufacturing industry, it is ranked #2.
To see additional POWR Ratings for Stability, Quality, and Momentum for CMT, click here.
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GE shares were trading at $92.97 per share on Tuesday afternoon, up $4.00 (+4.50%). Year-to-date, GE has gained 83.23%, versus a 2.69% 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.
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