Pivotal legislation and ongoing private-sector investments have been propelling immense industrial growth. Post IRA, new cleantech facilities and increased construction spending have also been contributing. Furthermore, the sector is embracing Industry 4.0 and fostering sustained expansion through advanced technologies.
Given the sector's growth trajectory, it appears wise to acquire shares of robust industrial stocks, The Eastern Company (EML), Greenland Technologies Holding Corporation (GTEC), and Team, Inc. (TISI), which exhibit significant untapped potential for substantial returns. Before delving into the featured stocks, let’s look into the sector's dynamics.
In 2023, the U.S. manufacturing sector harnessed the impetus from three pivotal laws enacted in 2021 and 2022: the Infrastructure Investment and Jobs Act (IIJA), the Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act, and the Inflation Reduction Act (IRA), driving progress and development.
The IIJA, CHIPS, and IRA have catalyzed unprecedented private sector investment in U.S. manufacturing by injecting funds and tax incentives into key sectors.
The manufacturing sector has experienced substantial growth in construction spending following the enactment of these acts. Post-IRA implementation, nearly 200 new clean technology manufacturing facilities, with a cumulative investment of $88 billion, have been announced.
Additionally, in November, new orders for manufactured goods increased by $14.9 billion or 2.6% to $592.9 billion, as reported by the U.S. Census Bureau. Shipments, following two consecutive monthly decreases, rose by $2.7 billion or 0.5% to $580.7 billion during the period.
Significant investments in onshoring, infrastructure, and sustainability hold the potential for sustained growth in diverse industrial sectors. Recent opportunities include commercial aerospace, utility infrastructure, residential construction, and shipping companies, positioning these segments for long-term expansion.
Furthermore, the sector is undergoing a transformative shift from traditional machine-based assembly lines to "smart factories," embracing robotics, the Internet of Things (IoT), data analytics, Augmented Reality (AR), and other advanced technologies.
Known as Industry 4.0, this evolution signifies the next phase in manufacturing digitization, propelled by advancements in automation and connectivity. Considering this encouraging outlook, let’s look at the fundamentals of the three industrial stocks.
The Eastern Company (EML)
EML designs, manufactures, and markets engineered solutions for industrial sectors, providing turnkey returnable packaging, packaged consumer goods, and pharmaceuticals. The company also crafts blow mold tools and injection blow mold tooling products.
In June of last year, EML strategically acquired specific assets from Sureflex, Inc., a leading manufacturer of tractor-trailer electrical connection cable assemblies. This addition to EML's Velvac subsidiary positions the company to manufacture superior electrical products, fostering a competitive edge in both cost and quality. This could have a positive impact on EML's growth trajectory and financial standing.
Over the past five years, EML’s revenue rose at a CAGR of 3.5%. Moreover, its total assets and levered free cash flow increased at a CAGR of 7.6% and 33.2%, respectively.
For the nine months that ended September 30, 2023, EML’s cash inflow from operating activities stood at $19.25 million, compared to a cash outflow of $324 thousand in the prior year’s period. Also, cash and cash equivalents at the end of the period grew 68.8% year-over-year to $9.54 million.
As of September 30, 2023, EML’s current assets amounted to $119.48 million, while total assets came in at $256.73 million. Shares of EML have gained 12.5% over the past month and 38.1% over the past six months, closing the last trading session at $24.85.
EML’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
EML has a B grade for Value and Stability. It is ranked #24 out of 91 stocks within the Industrial - Equipment industry.
In addition to the POWR Ratings I’ve highlighted, you can see EML’s Growth, Momentum, Sentiment, and Quality ratings here.
Greenland Technologies Holding Corporation (GTEC)
GTEC develops, manufactures, and markets transmission products tailored for material handling machinery, particularly forklift trucks utilized in manufacturing and logistics. The company is also engaged in powertrain development and the production of electric industrial vehicles.
On September 25, 2023, GTEC revealed that Quality Truck Center, a network of truck dealerships in Egg Harbor City, New Jersey, has joined its Authorized Service Provider (ASP) network program.
The collaboration aims to bolster support for the surging demand for GTEC's expanding HEVI electric industrial vehicle product line, enhancing the company's market presence and servicing capabilities.
Over the past three years, GTEC’s revenue and EBITDA increased at a CAGR of 16.5% and 4.9%, respectively. Furthermore, its tangible book value and total assets grew at respective CAGRs of 21.7% and 9.5% over the same time frame.
For the fiscal 2023 third quarter that ended September 2023, GTEC’s revenues marginally increased year-over-year to $21.84 million. Its gross profit grew 30.3% from the year-ago value to $6.27 million.
Additionally, as of September 30, 2023, the company’s cash and cash equivalents came in at $21.54 million, compared to $16.30 million as of December 31, 2022. Also, its current assets amounted to $138.93 million, up from $132.36 million as of December 31, 2022.
Analysts expect GTEC’s revenue to increase 15% year-over-year to $100.71 million for the fiscal year ending December 2024. Moreover, the company’s EPS for the current year is expected to grow 41.3% from the prior year to $0.33.
The stock has gained 40.6% over the past month and 111.8% over the past six months to close the last trading session at $3.60.
GTEC’s robust outlook is apparent in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.
GTEC has an A grade for Value and a B for Growth. It is ranked #17 out of 79 stocks within the A-rated Industrial - Machinery industry.
Click here to access additional GTEC ratings for Momentum, Stability, Sentiment, and Quality.
Team, Inc. (TISI)
TISI provides asset performance assurance and optimization solutions. Under its Inspection and Heat Treating (IHT) segment, the company offers non-destructive evaluation and testing services. In the Mechanical Services (MS) segment, TISI offers services such as composite repair, emissions control, hot tapping, and more.
On June 20, 2023, TISI disclosed transformative refinancing transactions, securing $87.4 million in new funding. This initiative enabled TISI to retire convertible notes, streamline its capital structure, and extend the next debt maturity to August 2025.
Empowered by this financial flexibility, TISI will gain the necessary runway to advance its turnaround plan, strategically lowering costs and enhancing cash flow.
Over the past three years, TISI’s EBITDA increased at a CAGR of 117.7%. In addition, its levered free cash flow grew at a CAGR of 162.4% during the same period.
For the fiscal 2023 third quarter that ended on September 30, 2023, TISI’s revenues from the IHT segment marginally increased year-over-year to $322.43 million. Its revenues from the MS segment grew 5.6% from the year-ago value to $326.06 million.
Moreover, the company’s gross margin rose 7.7% from the prior year’s period to $160.71 million, whereas consolidated adjusted EBITDA increased 229% year-over-year to $32.78 million.
The company’s EPS is expected to grow 11% annually over the next five years. Over the past month, the stock has gained 3.2%, closing the last trading session at $6.45.
TISI’s sound prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
TISI has a B grade for Growth, Value, and Momentum. It has ranked #14 in the A-rated Industrial - Services industry.
Click here to access the additional TISI ratings (Stability, Sentiment, and Quality).
What To Do Next?
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EML shares were unchanged in premarket trading Wednesday. Year-to-date, EML has gained 12.95%, versus a -0.08% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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