Industrial sector segments like industrial metal, industry building material, and industrial services, which are key contributors to any economy, are positioned to experience significant growth with favorable factors such as rising construction requirements, growing metal demand, and incorporating innovative technologies in manufacturing processes.
Given the industry’s bright prospects, it could be wise to invest in fundamentally strong industrial stocks Rio Tinto Group (RIO), EMCOR Group, Inc. (EME), Installed Building Products, Inc. (IBP), and DLH Holdings Corp. (DLHC) with solid market performance.
With rapid developments across the globe, various industrial segments are rising above levels ever before, such as construction materials, industrial equipment, and industrial services closely navigating the economic trajectory. The industrial services market is expected to reach $44.05 billion in 2028, growing at a CAGR of 5.7%.
The industrial services segment is among the key industries booming with the digitalization wave. The growing integration of digital technologies like the Internet of Things (IoT), Artificial Intelligence (AI), machine learning, and data analytics in industrial processes has created endless opportunities for this industry, driving its unhindered growth.
Also, the increasing need for remote monitoring and maintenance and the rise of additive manufacturing technologies are changing how work is done. The rising adoption of Industry 4.0 is creating a demand for specialized services that are compatible with these advanced technologies and offer seamless integration, optimization, and efficiency.
The construction industry’s growth is further fueling the metal and construction materials markets simultaneously. With technological innovations like metal recycling, green technologies and renewable energy, and the 4.0 industry, the metal market is well-poised for significant expansion.
The global construction materials market was valued at $1.32 trillion in 2023 and will likely grow to $1.37 trillion in 2024. The market is further expected to reach the value of $1.87 trillion by 2032, expanding at a CAGR of 3.9% during the forecast period (2024-2032).
Factors contributing to the construction materials market include surging demand for residential apartments, intense competition, and rising disposable incomes of homeowners or aspiring homeowners.
Moreover, investor’s interest in industrial stocks is evident from the iShares U.S. Industrials ETF’s (IYJ) 28.6% returns over the past year.
Given the industry’s solid outlook, investing in fundamentally strong industrial stocks such as RIO, EME, IBP, and DLHC could be wise for future gains.
Let’s discuss the fundamentals of these stocks in detail:
Rio Tinto Group (RIO)
Based in London, United Kingdom, RIO engages in the exploration, mining, and processing of mineral resources globally. It operates in Iron Ore; Aluminium; Copper; and Minerals segments. It engages in iron ore mining, salt and gypsum production, bauxite mining, alumina refining, aluminum smelting, and mining and refining of copper, gold, silver, and others.
On March 26, 2024, RIO’s Rio Tinto Exploration Canada Inc. (RTEC) announced the acquisition of 108,204,112 common shares in the capital of Star Diamond Corporation (SDC) in exchange for all of its interest in the Fort à la Corne joint venture. Consequently, it will result in 119,315,222 common shares representing a 19.9% interest in the SDC of RTEC.
On February 26, 2024, RIO’s Rio Tinto’s Iron Ore Company (IOC) of Canada was awarded C$18.10 million ($13.31 million) by the Government of Canada to support the decarbonization of iron ore processing at its operations in Labrador West. The funding will allow the IOC to reduce heavy fuel oil consumed while producing iron ore pellets and concentrate.
For the fiscal year that ended December 31, 2023, RIO reported consolidated sales revenue of $54.04 billion, and its operating profit for the same period was $14.82 billion. The company’s profit after tax for the year and EPS came in at $9.95 billion and $6.16, respectively.
In addition, the company’s total assets were $103.55 billion as of December 31, 2023, compared to total assets of $96.77 billion as of December 31, 2022.
Street expects RIO’s revenue for the fiscal year 2024 to increase 0.5% year-over-year to $54.33 billion. The company’s EPS for the same period is expected to grow 8.4% year-over-year to $7.86.
Shares of RIO have surged 1.8% over the past six months to close the last trading session at $63.46.
RIO’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which translates 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.
RIO has a B grade for Value, Quality, and Stability. It is ranked #2 out of 33 stocks in the Industrial - Metals industry.
In addition to the POWR Ratings we’ve stated above, we also have RIO ratings for Momentum, Sentiment, and Growth. Get all RIO ratings here.
EMCOR Group, Inc. (EME)
EME offers construction and facilities, building, and industrial services mainly in the United States and the United Kingdom. The company provides design, integration, installation, start-up, operation, and maintenance services related to power transmission, distribution, and generation systems.
In terms of forward EV/Sales, EME is trading at 1.17x, 35.6% lower than the industry average of 1.82x. Similarly, the stock’s forward Price/Sales multiple of 1.20 is 20.2% lower than the industry average of 1.51.
EME’s trailing-12-month ROCE of 28.49% is 137.1% higher than the industry average of 12.02%. Further, the stock’s trailing-12-month ROTC and ROTA of 20.60% and 9.58% are 193.4% and 98.7% higher than the industry averages of 7.02% and 4.82%, respectively.
During the fiscal year that ended December 31, 2023, EME’s revenues increased 13.6% year-over-year to $12.58 billion. Its gross profit grew 30.3% from the year-ago value to $2.09 billion. The company’s non-GAAP net income and EPS came in at $634.69 million and $13.24, up 56.3% and 64.7% from the prior year’s quarter, respectively.
Furthermore, the company’s cash and cash equivalents stood at $789.75 million as of December 31, 2023, versus $456.44 million as of December 31, 2022.
Analysts expect EME’s revenue and EPS for the first quarter (ending March 2024) to increase 11.6% and 25.3% year-over-year to $3.23 billion and $2.91, respectively. Furthermore, the company has surpassed the consensus EPS and revenue estimates in all four trailing quarters.
EME’s stock has gained 65.6% over the past six months and 120.9% over the past year to close the last trading session at $351.59.
EME’s bright prospects are reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
The stock has a B grade for Growth, Quality, Momentum, and Sentiment. EME is ranked #6 among 77 stocks in the A-rated Industrial – Services industry.
Click here to access all EME’s ratings.
Installed Building Products, Inc. (IBP)
IBP engages in the installation of insulation, waterproofing, fire-stopping, fireproofing, garage doors, rain gutters, window blinds, shower doors, closet shelving and mirrors, and other products. The company operates in three segments: Installation; Distribution; and Manufacturing Operation.
On February 22, 2024, IBP’s board of directors approved the company’s quarterly cash dividend of $0.35 per share, payable on March 31, 2024, to stockholders of record on March 15, 2024. Also, they approved the entity’s annual variable cash dividend at $1.60 per share, payable on March 31, 2024, to stockholders of record on March 15, 2024.
IBP pays an annual dividend of $1.34, which translates to a yield of 0.52% at the current share price. Its four-year average dividend yield is 1.17%. Moreover, the company’s dividend payouts have increased at a CAGR of 64.7% over the past three years.
On December 11, 2023, IBP acquired Combee Insulation Company, Inc., Combee Foam Products, Inc. and Air Tight Diagnostics, LLC. Combee, headquartered in Lakeland, Florida, installs a diverse mix of building products, including fiberglass insulation, spray foam insulation, and garage doors.
"With approximately $16.5 million of annual revenue, Combee expands our presence to serve single-family, multifamily, and commercial customers throughout Central Florida," said Jeff Edwards, IBP’s Chairman and Chief Executive Officer.
For the fourth quarter that ended December 31, 2023, IBP’s net revenue increased 5% year-over-year to $720.70 million. Its adjusted gross profit rose 13% from the year-ago value to $245.70 million. The company’s adjusted net income amounted to $77.30 million and $2.72 per share, increases of 11.9% and 11.9% year-over-year, respectively.
Furthermore, the company’s adjusted EBITDA came in at $128.30 million, up 11.2% from the prior year’s quarter.
Street expects IBP’s revenue for the first quarter (ending March 2024) to increase 3.7% year-over-year to $683.97 million, while its EPS for the same quarter is expected to grow 5.9% year-over-year to $2.28, respectively. In addition, the company has surpassed the consensus EPS estimates in each of the trailing four quarters.
Over the past six months, the stock has gained 110.4% and 137.6% over the past year to close the last trading session at $255.38.
IBP’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
The stock has an A grade for Quality and a B for Growth and Momentum. Within the A-rated Industrial – Building Materials industry, IBP is ranked #16 of 46 stocks.
Click here to access additional ratings of IBP for Value, Stability, and Sentiment.
DLH Holdings Corp. (DLHC)
DLHC provides technology-enabled business process outsourcing, program management solutions, and public health research and analytics services. The company offers digital transformation and cyber security solutions to the NIH, the Defense Health Agency, the Tele-Medicine and Advanced Technology Research Center, and US NIWC.
On March 7, 2024, DLHC was awarded a contract by the National Institutes of Health’s (NIH) National Cancer Institute (NCI) to continue and expand its user experience, technology refresh, and IT services. The contract is valued at nearly $52 million over a performance period of five and a half years.
The contract extends DLH’s longstanding partnership with NCI’s Biomedical Informatics and Information Technology (CBIIT) by offering scientific computing and informatics to support NCI’s research mission.
On February 13, 2024, DLHC was awarded a contract to continue providing information technology (IT) services for the NIH’s National Institute on Drug Abuse (NIDA). NIDA is the lead federal agency supporting scientific research on drug use and addiction.
This new contract further extends the partnership between DLHC and NIDA. The contract provides a base period of one year with four more one-year options for a total value of about $23 million. DLHC will provide IT services, including managing integrated advanced clinical/research informatics operations.
During the fiscal 2024 first quarter that ended December 31, 2023, DLHC’s revenue increased 34.5% year-over-year to $97.85 million. Its income from operations grew 73.9% from the prior year’s quarter to $6.82 million. The company’s net income came in at $2.15 million and $0.15 per share, up 39% and 36.4% year-over-year, respectively.
Also, the company’s EBITDA increased 75.1% from the year-ago value to $11.07 million.
Analysts expect DLHC’s EPS for the third quarter (ending June 2024) to increase 8.3% year-over-year to $0.13. The company’s revenue is expected to grow marginally year-over-year to $103 million for the same period. Moreover, the company has topped the consensus EPS estimates in three of the four trailing quarters.
DLHC’s stock has surged 18.3% over the past six months and 23.6% over the past year to close the last trading session at $13.91.
DLHC’s POWR Ratings reflect this robust outlook. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system.
The stock has an A grade for Sentiment, Growth, and Value. Within the A-rated Industrial - Services, DLHC is ranked #8 out of 77 stocks.
Click here to access additional ratings of DLHC for Stability, Momentum, and Quality.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
RIO shares were trading at $63.65 per share on Thursday morning, up $0.19 (+0.30%). Year-to-date, RIO has declined -10.98%, versus a 10.38% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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