Despite the macroeconomic challenges, the industrial–machinery sector is well-positioned for growth thanks to the government’s push to boost domestic manufacturing, improve infrastructure investments, and adopt new-age technologies to make manufacturing processes efficient.
Amid this backdrop, it could be wise to buy fundamentally strong industrial stocks Honeywell International Inc. (HON), Howmet Aerospace Inc. (HWM), and The Weir Group PLC (WEGRY).
Before diving deeper into the fundamentals of these stocks, let’s discuss why the industrial manufacturing industry is well-positioned for growth.
Manufacturing has shown signs of slowing as U.S. industrial production fell below expectations of a flat reading, declining 0.5% in June. Manufacturing output declined 0.3%, compared to expectations of a flat reading. Moreover, capacity utilization stood at 78.9%, compared to the expectations of 79.5%.
However, the industrial-machinery sector looks well positioned for long-term growth thanks to the U.S. government’s push to boost domestic manufacturing. Laws like the Inflation Reduction Act, dubbed the IRA, and the CHIPS and Science Act will deliver the required push to boost domestic manufacturing.
The Infrastructure Investment and Jobs Act (IIJA) will provide $550 billion over fiscal years 2022 through 2026 to improve roads, bridges, water infrastructure, etc. These investments to help improve infrastructure will increase the demand for industrial machinery.
Furthermore, the industrial machinery industry will benefit from the shift to Industry 4.0 and the adoption of newer technologies like the Internet of Things (IoT), artificial intelligence (AI), and machine learning.
The global industrial machinery market is projected to reach $835.34 billion by 2028, growing at a CAGR of 3.6% during the forecast period.
Let's take a closer look at the fundamentals of the featured stocks.
Honeywell International Inc. (HON)
HON operates as a diversified technology and manufacturing company worldwide. It operates through four segments: Aerospace, Honeywell Building Technologies, Performance Materials & Technologies, and Safety & Productivity Solutions.
On July 10, 2023, HON announced it had agreed to acquire SCADAfence, a leading provider of cybersecurity solutions for large-scale operational technology (OT) and Internet of Things (IoT) cybersecurity solutions for monitoring large-scale networks.
SCADAfence will integrate into the Honeywell Forge Cybersecurity+ suite providing expanded asset discovery, threat detection, and compliance management capabilities. The acquisition of SCADAfence would extend HON’s OT cybersecurity portfolio to build upon its comprehensive professional services, managed security services, and software solutions.
In terms of the trailing-12-month EBITDA margin, HON’s 23.31% is 72.7% higher than the 13.50% industry average. Likewise, its 14.54% trailing-12-month net income margin is 129% higher than the 6.35% industry average. Furthermore, its 11.49% trailing-12-month levered FCF margin is 119.1% higher than the 5.24% industry average.
HON’s net sales for the first quarter ended March 31, 2023, increased 5.8% year-over-year to $8.86 billion. The company’s net income attributable to HON increased 22.9% year-over-year to $1.41 billion. Additionally, its adjusted EPS came in at $2.07, representing an increase of 8% year-over-year.
For the quarter ended June 30, 2023, HON’s EPS and revenue are expected to increase 5.4% and 2.4% year-over-year to $2.21 and $9.17 billion, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 20.5% to close the last trading session at $208.17.
HON’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Momentum, Stability, Sentiment, and Quality. Within the A-rated Industrial – Machinery industry, it is ranked #28 out of 79 stocks. To see HON’s Growth and Value rating, click here.
Howmet Aerospace Inc. (HWM)
HWM provides advanced engineered solutions for the aerospace and transportation industries. It operates through four segments: Engine Products, Fastening Systems, Engineered Structures, and Forged Wheels.
In terms of the trailing-12-month EBITDA margin, HWM’s 22.10% is 63.7% higher than the 13.50% industry average. Likewise, its 8.18% trailing-12-month net income margin is 28.9% higher than the 6.35% industry average. Furthermore, the stock’s 8.96% trailing-12-month levered FCF margin is 70.9% higher than the 5.24% industry average.
For the fiscal first quarter ended March 31, 2023, HWM’s net sales increased 21.1% year-over-year to $1.60 billion. Its operating income rose 23.9% year-over-year to $285 million. Its net income rose 13% year-over-year to $148 million.
Its EPS came in at $0.35, representing an increase of 12.9% year-over-year. Additionally, its adjusted EBITDA rose 19.1% year-over-year to $355 million.
Street expects HWM’s EPS and revenue to increase 23.4% and 15.4% year-over-year to $0.43 and $1.61 billion, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 52.4% to close the last trading session at $50.20.
HWM’s POWR Ratings are consistent with this positive outlook. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has an A grade for Sentiment and a B for Growth and Quality. It is ranked #27 in the same industry. Click here to see HWM’s Value, Momentum, and Stability ratings.
The Weir Group PLC (WEGRY)
Headquartered in Glasgow, the United Kingdom, WEGRY produces and sells highly engineered original equipment worldwide. It operates in two segments, Minerals and ESCO. The Minerals segment offers engineering, manufacturing, and service processing technology. The ESCO segment provides ground-engaging tools, attachments, AI, and 3D rugged machine vision technologies.
In terms of the trailing-12-month EBITDA margin, WEGRY’s 15.41% is 14.2% higher than the 13.50% industry average. Likewise, its 8.63% trailing-12-month net income margin is 36% higher than the 6.35% industry average. Furthermore, its 7.06% trailing-12-month levered FCF margin is 34.6% higher than the 5.24% industry average.
WEGRY’s revenues for the fiscal year ended December 31, 2022, increased 27.8% year-over-year to £2.47 billion ($3.23 billion). Its adjusted operating profit increased 33.4% year-over-year to £395 million ($516.72 million).
The company’s adjusted profit for the year rose 39.9% year-over-year to £256.20 million ($335.15 million). In addition, the adjusted EPS came in at 98.4p, representing an increase of 38% year-over-year.
Analysts expect WEGRY’s revenue for fiscal 2023 to increase 13.5% year-over-year to $3.37 billion. Over the past year, the stock has gained 45.2% to close the last trading session at $11.59.
WEGRY’s promising outlook is reflected in its POWR Ratings. WEGRY has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has an A grade for Stability and a B for Momentum. It is ranked #31 in the Industrial – Machinery industry. To see WEGRY’s ratings for Growth, Value, Sentiment, and Quality, click here.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
HON shares were trading at $205.39 per share on Tuesday afternoon, down $2.78 (-1.34%). Year-to-date, HON has declined -3.14%, versus a 19.31% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
3 Hot Industrial Picks for Mid-July StockNews.com
