The expected surge in infrastructural and construction projects will likely fuel demand for industrial metals. Given this backdrop, metal stocks Anglo American plc (NGLOY), ESAB Corporation (ESAB), and Gibraltar Industries, Inc. (ROCK) could be wise portfolio additions now.
The metal industry provides raw materials and essential components to the manufacturing, construction, automotive, aerospace, and infrastructure sectors. The metal components are vital in their production processes.
The metal industry has grappled with a wave of challenges that have significantly impacted the profitability of metal manufacturers. Geopolitical instability-induced supply chain disruption and escalating raw materials and transport costs presented significant obstacles for the industry.
However, a sharp increase in global population, rising urbanization, and extensive infrastructure developments in developing economies such as China, India, and Brazil are anticipated to bolster demand for metal and steel, thereby potentially ensuring the industry's durability in years to come.
Further encouragement comes from an apparent rise in base metals demand, mainly stemming from revitalized economic conditions in China and better-than-expected industrial growth in Europe and the United States. Consequently, rising demand and existing supply bottlenecks could trigger an upward shift in base metal prices.
Experts predict that red metal copper, which gained heightened prominence, has far-reaching use within telecom, real estate, EVs, and other sectors converging on the energy transition, suggesting a bright future for copper over the next few decades.
Also, base metals play crucial roles in decarbonization efforts. As countries like the United States and Europe continue to confront and rectify climate change via transitions toward renewable energy sources, it is projected that the demand for base metals will sharply increase.
Moreover, the flawless integration of advanced technologies could bolster productivity and operational efficiency, augment output levels, and reduce costs.
The global metal market is anticipated to reach $5.46 trillion by 2027, growing at a CAGR of 6.6%. Furthermore, the SPDR S&P Metals and Mining ETF (XME) has returned 4.2% over the past three months, substantiating investors’ interest in metal stocks.
Given the industrial tailwinds, quality metal stocks NGLOY, ESAB, and ROCK could be solid buys now.
Anglo American plc (NGLOY)
Headquartered in London, the United Kingdom, NGLOY is a global mining company that explores rough and polished diamonds, copper, platinum group metals, and metallurgical and thermal coal.
NGLOY pays an annual dividend of $0.65, which translates to a 4.66% yield on the current share price. Its four-year average dividend yield is 6.08%. The company’s dividend payouts have grown at a CAGR of 22% over the past three years and 14.2% over the past five years.
NGLOY’s trailing-12-month cash from operations of $7.30 billion is significantly higher than the industry average of $361.60 million. Likewise, its trailing-12-month gross profit and EBIT margins of 56.68% and 23.26% are 102.7% and 111.5% higher than the industry averages of 27.96% and 11%, respectively.
The company’s forward non-GAAP P/E of 9.03x is 36.4% lower than the industry average of 14.18x. Likewise, its forward EV/EBITDA and EV/EBIT multiples of 4.35 and 6.15 are 46.4% and 48% lower than the industry averages of 8.11 and 11.83, respectively.
For the fiscal second quarter that ended June 30, 2023, NGLOY’s copper production increased 56% year-over-year to 209 kt, while its steelmaking coal production grew 28% year-over-year to 3.4 Mt.
For the six months that ended June 30, 2023, NGLOY’s revenue stood at $15.67 billion, while its underlying EBITDA came at $5.11 billion. Profit attributable to equity shareholders of the company and earnings per share stood at $1.26 billion and $1.04, respectively. The company’s total current liabilities as of June 30, 2023, stood at $8.05 billion compared to $10.49 billion as of December 31, 2022.
Analysts expect NGLOY’s revenue and EPS to come at $32.01 billion and $1.53 for the fiscal year ending December 2023. For the fiscal year 2024, its revenue and EPS are expected to grow 5.6% and 23% year-over-year to $33.81 billion and $1.88, respectively.
The stock has gained marginally intraday to close the last trading session at $13.82.
NGLOY’s positive outlook is reflected in the POWR Ratings. It has an overall rating of A, which translates to Strong 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 Value and Quality. Within the Industrial – Metals industry, it is ranked #2 out of 31 stocks.
In addition to the POWR Ratings highlighted above, one can see NGLOY’s Growth, Momentum, Stability, and Sentiment ratings here.
ESAB Corporation (ESAB)
ESAB formulates, develops, manufactures, and supplies cutting, joining, and automated welding products and equipment. It offers control equipment, software, and digital solutions to enhance customer productivity, remotely monitor welding operations, and digitize documentation.
On July 12, ESAB announced its partnership with GRI Renewable Industries, a leading global manufacturer of wind turbine components. The companies will collaborate on green projects to support their mutual commitment to running sustainable businesses, transitioning to green energy, and reducing each company’s environmental footprint. This should bode well for both companies.
On July 14, ESAB paid a quarterly dividend of $0.06 per share of the company’s common stock. It pays an annual dividend of $0.24, which translates to a 0.33% yield on the current share price. Its four-year average dividend yield is 0.20%.
ESAB’s trailing-12-month EBIT margin of 14.21% is 45.9% higher than the industry average of 9.74%. Furthermore, its trailing-12-month net income and levered FCF margins of 7.83% and 7.22% are 25.3% and 39.1% higher than the industry averages of 6.25% and 5.19%, respectively.
The company’s forward non-GAAP P/E of 16.78x is 6.1% lower than the industry average of 17.88x. Likewise, its forward EV/EBIT multiple of 13.52 is 13.2% lower than the industry average of 15.58.
For the fiscal second quarter that ended June 30, 2023, ESAB’s net sales increased 9% year-over-year to $720.42 million, while its gross profit grew 16% from the year-ago value to $263.92 million. The company’s operating income stood at $108.64 million, up 26.5% year-over-year.
ESAB’s core adjusted EBITDA rose 20.5% from the prior-year quarter to $126.50 million. Its adjusted free cash flow increased 60.5% year-over-year to $58.60 million. As of June 30, 2023, its total current assets stood at $1.07 billion, compared to $988.67 million as of December 31, 2022.
The consensus revenue and EPS estimates of $623.66 million and $0.93 for the fiscal third quarter ending September 2023 reflect 8.1% and 1.1% year-over-year improvements, respectively. The company topped the consensus EPS estimates in all trailing four quarters, which is impressive.
The stock has gained 60.7% over the past year to close the last trading session at $71.09. Over the past six months, the stock has gained 20.5%.
ESAB’s POWR Ratings reflect a promising prospect. It has an overall rating of B, translating to Buy in our proprietary rating system.
ESAB has a B grade for Momentum and Sentiment. It is ranked #3 within the Industrial – Metals industry.
Click here for additional ESAB ratings (Growth, Value, Stability, and Quality).
Gibraltar Industries, Inc. (ROCK)
ROCK manufactures and distributes building products for North America and Asia's renewable energy, residential, ag-tech, and infrastructure markets. It operates through four segments: Renewables; Residential; Agtech; and Infrastructure.
ROCK’s trailing-12-month net income margin and levered FCF margin of 6.56% and 12.19% are 5% and 134.8% higher than the industry averages of 6.25% and 5.19%, respectively. Likewise, its trailing-12-month asset turnover ratio of 1.08x is 33.6% higher than the industry average of 0.81x.
The company’s forward EV/Sales of 1.61x is 10.8% lower than the industry average of 1.80x. Likewise, its forward EV/EBITDA and EV/EBIT multiples of 10.83 and 13.98 are 3.8% and 10.3% lower than the industry averages of 11.26 and 15.58, respectively.
For the fiscal second quarter that ended June 30, 2023, ROCK’s net sales came in at $364.91 million, while gross profit rose 7.2% year-over-year to $96.74 million. Its adjusted net income and net income per share increased 15.3% and 22.9% year-over-year to $36.29 million and $1.18, respectively.
For the six months that ended June 30, 2023, net cash provided by operating activities stood at $114.09 million, up significantly year-over-year. As of June 30, 2023, the company's long-term debt stood at $9.79 million, compared to $88.76 million as of December 31, 2022.
For the fiscal fourth quarter ending December 2023, ROCK’s revenue and EPS are expected to increase 7.4% and 33.3% year-over-year to $337.03 million and $0.96, respectively. It surpassed Street EPS estimates in three of the trailing four quarters.
Over the past three months, the stock has gained 31.2% to close its last trading session at $72.55. Moreover, the stock gained 60.9% over the past year.
ROCK’s POWR Ratings reflect solid prospects. It has an overall rating of A, which translates to Strong Buy in our proprietary rating system.
It has an A grade for Momentum and Sentiment and a B for Growth and Quality. Within the same industry, it is ranked first.
To see ROCK’s Value and Stability ratings, click here.
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NGLOY shares were unchanged in premarket trading Friday. Year-to-date, NGLOY has declined -27.89%, versus a 17.21% 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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