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As the ongoing market rally is primarily driven by artificial intelligence (AI) stocks, there are many companies across multiple sectors that still trade at enticing valuations. According to Oppenheimer, the industrial sector is one to watch, following a recent pullback in this group that has played a key leadership role through the bull market.
Given this opportunity to buy into long-term strength, the brokerage firm also named some top industrial stocks, including Uber (UBER), XPO (XPO), and Knife River (KNF), that may outperform going forward, as they look “tactically attractive” around current levels.
1. Uber Stock
Valued at $150 billion by market cap, Uber (UBER) continues to grow at an enviable pace. In Q1 of 2024, its user base and gross bookings rose by 15% and 20%, respectively, allowing the ride-hailing giant to increase sales by 15% year over year to $10.1 billion.
With 149 million monthly active users, Uber's user base is widening, providing it with a competitive moat. After reporting several years of losses, Uber benefits from economies of scale, reporting an operating income of $172 million in the March quarter.
In addition to ride-hailing, Uber has entered verticals such as food delivery and freight transportation in recent years, rapidly widening its total addressable market. It is also investing heavily in autonomous driving technologies, which might be a multi-billion-dollar revenue stream in the future.
UBER stock is forecast to end 2028 with adjusted earnings per share of $6. If the stock is priced at 30x, it should trade around $180 in July 2028, much higher than the current trading price of $71.
Out of the 40 analysts tracking Uber stock, 35 recommend “strong buy,” three recommend “moderate buy,” and two recommend “hold.” The average target price for UBER is $86.85, 21.4% higher than the current trading price.
2. XPO Stock
XPO (XPO) is a freight transportation company valued at $12 billion by market cap. Despite a challenging macro environment, XPO increased sales by 5.8% year over year to $2.02 billion in Q1, primarily due to 9% growth in its core North American less-than-truckload business.
Its adjusted operating ratio in this business improved by 390 basis points to 85.7%, allowing it to increase adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) by 50% to $175 million.
A widening profit margin meant XPO reported adjusted earnings by $0.81 in Q1 - up from $0.56 in the year-ago period, and higher than estimates for $0.68 per share. Priced at 28x forward earnings, XPO stock is quite cheap, given earrings are forecast to increase by 29.2% annually in the next five years.
Out of the 18 analysts tracking XPO stock, 14 recommend “strong buy,” one recommends “moderate buy,” two recommend “hold,” and one recommends “strong sell.” The average target price for XPO is $132.17, 30.7% higher than the current trading price.
3. Knife River Stock
The final stock on my list is Knife River (KNF), which is valued at $4 billion by market cap. Knife River mines, processes, and sells construction aggregates, including crushed stone and sand. It also produces and sells asphalt and ready-mix concrete.
Knife River reported record sales in Q1, with the top line expanding by 7% year over year to $329.6 million. However, it reported a net loss of $47.6 million, which the company explained is typical for its business, as construction activity in several northern markets ramps up in the second half of the year.
Out of the seven analysts tracking KNF stock, six recommend “strong buy,” and one recommends “hold.” The average target price for KNF is $84, over 18% higher than the current trading price.
Knife River is forecast to end 2024 with adjusted earnings per share of $3.56. Analysts also forecast it to report adjusted earnings of $9 per share in 2028. So, if the stock is priced at 25x forward earnings, it would trade at $225, indicating an upside potential of 200% from current levels.
On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
