Despite the ongoing supply chain disruptions, strong demand for goods has kept the industrial sector growing. Total industrial production at the U.S. factories increased by 0.6% in July. Also, U.S. manufacturing increased steadily in August with the rebound of employment and new orders. Moreover, acceleration in the adoption of digital technology and advancing sustainability practices are expected to bolster the sector’s growth.
However, 3M Company (MMM), the industrial conglomerate’s shares, declined 20.9% over the past month due to an overhang of lawsuits. In late August, two veterans sued the company to block the spinoff of its healthcare business over the company’s faulty earplugs that caused hearing damage.
More than 2,20,2000 lawsuits have already been filed over the earplugs, making U.S. District Judge M. Casey Rodgers highly critical of 3M’s legal strategy. Additionally, the company plans to eliminate jobs as a part of its cost-cutting drive as its legal woes worsen.
Thus, we think fundamentally solid industrial stocks, Caterpillar Inc. (CAT) and Tennant Company (TNC), could be better buys than MMM now.
Caterpillar Inc. (CAT)
CAT manufactures and sells construction and mining equipment, diesel and natural gas engines, and industrial gas turbines. The company operates through five segments: Construction Industries; Resource Industries; Energy & Transportation; Financial Products; and All Other.
On August 30, 2022, CAT, along with BHP Group Limited (BHP) and Finning International Inc. (FINGF), announced an agreement to replace BHP’s entire haul truck fleet at the Escondida mine, the world’s largest copper producer, as a part of their strategic equipment renewal process.
The new Caterpillar 798 AC electric drive trucks shall deliver significant improvements in capacity, efficiency, reliability, and safety and generate a positive economic impact. This long-term relationship with BHP should be strategically beneficial for CAT.
For the fiscal second quarter ended June 30, CAT’s total sales and revenues increased 10.5% year-over-year to $14.25 billion. Profit rose 18.4% from the prior-year quarter to $1.67 billion, while adjusted profit per share improved 22.3% to $3.18 in the same period. Operating profit came in at $1.94 billion, up 8.7% from the prior-year period.
The consensus EPS estimate of $3.19 for the fiscal quarter ending September 2022 indicates a 20% year-over-year increase. The consensus revenue estimate of $14.28 billion for the same period represents a 15.2% year-over-year increase. Moreover, CAT has an impressive surprise earnings history, as it has topped consensus EPS estimates in three of the trailing four quarters.
CAT’s stock has slumped 6.4% over the past month to close its last trading session at $184.31.
CAT’s strong fundamentals 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 are calculated by considering 118 different factors, with each factor weighted to an optimal degree. In the 79-stock, B-rated Industrial – Machinery industry, CAT is ranked #24.
Click here to see the POWR Ratings for CAT for Growth, Value, Momentum, Stability, Sentiment, and Quality.
Tennant Company (TNC)
TNC designs, manufactures, and markets floor cleaning equipment in the Americas, Europe, the Middle East, Africa, and the Asia Pacific.
For the fiscal quarter ended June 30, 2022, TNC’s net sales increased marginally year-over-year to $280.20 million. Its net income grew 69.4% from the year-ago value to $16.60 million, while operating income for the quarter stood at $22.80 million. Moreover, its net income per share was $0.89, up 74.5% from the prior-year quarter.
Street expects TNC’s revenue in the quarter ending September 2022 to come in at $286.90 million, indicating an increase of 5.5% year-over-year. Also, the company’s revenue is expected to grow 3.9% year-over-year to $1.13 billion in the ongoing fiscal year. TNC also surpassed the consensus EPS estimates in three of the trailing four quarters.
TNC has gained 4% over the past three months to close the last trading session at $59.78.
TNC’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our POWR Ratings system.
The company also has a B grade in Value, Stability, and Quality. It is ranked #16 in the same industry. To get TNC’s ratings for Growth, Momentum, and Sentiment, click here.
CAT shares were trading at $181.96 per share on Wednesday morning, down $2.35 (-1.28%). Year-to-date, CAT has declined -10.52%, versus a -16.84% rise in the benchmark S&P 500 index during the same period.
About the Author: Komal Bhattar
Komal's passion for the stock market and financial analysis led her to pursue investment research as a career. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
2 Industrial Stocks to Buy Right Now That Are Better Than 3M StockNews.com
