The industrial sector showed strength during the third quarter of 2022. This was primarily because of easing restrictions and growing demand for industrial goods in various sectors. Industrial production increased 3.3% year-over-year in October, despite labor shortages, supply chain constraints, and soaring inflation.

Furthermore, growing government investments are expected to boost the sector’s growth. A year ago, President Biden signed the Bipartisan Infrastructure Law with the promise to restore airports, roads, and bridges and has already funded over $185 billion for over 6,900 projects. The law also promises to allocate $8 billion for the Infrastructure for Rebuilding America (INFRA) program in the next five years.

With increasing industrial, residential, and commercial projects; and favorable government policies and funding, the global construction equipment market is expected to grow at a CAGR of 6.6% to $222.14 billion by 2028.

Given the industry's bright growth prospects, investing in fundamentally strong industrial stocks Belden Inc. (BDC) and LSI Industries Inc. (LYTS) seems wise. However, FuelCell Energy, Inc. (FCEL) might be best avoided now due to its weak financials and bleak growth attributes.

Stocks to Buy:

Belden Inc. (BDC)

BDC is a global provider of specialized networking solutions. It operates through two segments, the Enterprise Solutions segment, which offers network infrastructure and broadband solutions; and the Industrial Solutions segment, which sells networking and machine connectivity devices.

On November 16, BDC introduced six new solutions emphasizing deployment simplicity, ruggedization, and network security. BDC hopes to boost its revenue streams from these new solutions.

On September 20, BDC announced a partnership with Cylus, the industry pioneer in rail cybersecurity, enabling users of BDC's Firewall to supplement it with an enhanced version of CylusOne™ software.

The company aims to profit from delivering world-leading rail-specific threat detection and visibility solutions, thereby ensuring a more secure future for rail by supporting Cylus’ adaptation of its CylusOne software.

For the fiscal 2022 third quarter ended October 2, 2022, BDC’s revenues grew 10.9% year-over-year to $670.49 million, while its gross profit increased 17.3% from the prior year’s quarter to $238.65 million. Its operating income rose 73.5% year-over-year to $129.65 million.

In addition, BDC’s net income increased 138% year-over-year to $98.32 million, while its EPS stood at $2.23, a 145.1% increase from the year-ago value.

On November 30, BDC's Board of Directors declared a quarterly dividend to holders of common stock of $0.05 per share, payable on January 5, 2023, to shareholders of record as of December 15, 2022. BDC pays a $0.20 per share dividend annually, which translates to a 0.26% yield on the current price. Its four-year average dividend yield is 0.42%.

Analysts expect the company’s EPS and revenue for the current fiscal quarter ending December 2022 to increase 25.4% and 0.8% year-over-year to $1.66 and $644.03 million, respectively.

In addition, the company’s EPS and revenue for the next quarter are expected to grow 12.2% and 0.7% from the year-ago quarter to $1.47 and $614.84 million, respectively. Furthermore, BDC has surpassed its consensus EPS in all four trailing quarters, which is impressive.

Shares of BDC have gained 46.2% over the past six months to close the last trading session at $77.49.

BDC’s POWR Ratings reflect its strong outlook. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

The stock has a B grade for Quality, Sentiment, Growth, and Value. Within the Industrial - Equipment industry, it ranked #6 of 90 stocks.

To see additional POWR ratings for Stability, and Momentum for BDC, click here.

LSI Industries Inc. (LYTS)

LSI is a manufacturer of commercial lighting and retail display solutions. It operates through two segments: Lighting and Display Solutions. While its Display Solutions Segment manufactures and installs exterior and interior visual image components, its Lighting Segment manufactures and sells outdoor and indoor lighting fixtures.

On October 18, LYTS announced the launch of REDiMount, a new lighting option with a ground-breaking mounting and installation mechanism for refueling station canopies. The company is expected to benefit from this game-changing design breakthrough by establishing a new standard for canopy lighting systems.

For the fiscal 2023 first quarter ended September 30, 2022, LYTS’ net sales grew 19% from the year-ago value to $127.07 million, while its adjusted operating income increased 118% year-over-year to $10.89 million. The company’s adjusted net income came in at $7.08 million, a 100% increase year-over-year, and its adjusted EPS stood at $0.25, up 92%year-over-year.

LYTS pays a $0.20 per share dividend annually, which translates to a 1.72% yield on the current price. Its four-year average dividend yield is 3.46%.

The consensus EPS estimate of $0.78 for the current fiscal year ending June 2023 indicates a 44.4% year-over-year improvement. Likewise, the consensus revenue estimate of $489.05 million for the current year indicates a rise of 7.5% from the previous year.

In addition, analysts expect the company’s EPS and revenue for the next fiscal year to grow 7.1% and 4% year-over-year to $0.84 and $508.59 million, respectively. Shares of LYTS have gained 17.3% over the past month and 71.6% year-to-date to close the last trading session at $11.82.

LYTS’ POWR Ratings reflect its promising outlook. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.

The stock has an A grade for Sentiment and a B for Growth, Value, and quality. Within the Industrial - Equipment industry, LYTS has topped among 90 stocks.

Click here to see additional ratings of LYTS for Stability and Momentum.

Stock to Avoid:

FuelCell Energy, Inc. (FCEL)

FCEL manufactures fuel cell technology platforms and offers sustainable goods and solutions. Its customers include utility companies, municipalities, universities, hospitals, government entities/military bases, and a wide range of industrial and commercial firms.

For the third quarter of fiscal 2022 ended July 31, FCEL’s service revenues declined 36.9% from the prior year to $9.05 million. The company reported a gross loss of $4.18 million compared to a gross profit of $1.10 million in the year-ago quarter. Its adjusted EBITDA loss worsened by 301.5% year-over-year to $20.77 million.

Furthermore, the company’s net loss and net loss per share widened 141.5% and 100% year-over-year to 28.98 million and $0.08, respectively.

Analysts expect FCEL’s loss per share of $0.07 for the fiscal 2022 fourth quarter, ending October 2022. Moreover, the company is expected to report an 11.1% loss per share of $0.34 for the current fiscal year. The stock has slumped 41.2% over the past year to close the last trading session at $3.72.

FCEL’s POWR Ratings are consistent with this bleak outlook. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system.

The stock has an F grade for Stability, Sentiment, and Quality. Within the same industry, it ranked #85 of 90 stocks.

Click here to see the additional rating of FCEL for Value, Growth, and Momentum.

BDC shares were trading at $74.93 per share on Thursday afternoon, down $2.56 (-3.30%). Year-to-date, BDC has gained 14.37%, versus a -16.86% rise in the benchmark S&P 500 index during the same period.

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.

More...