The industrial sector remains well-positioned for significant growth amid the boost in domestic manufacturing, rise in demand for minerals and metals, surge in economic activity, rising infrastructure spending, increased technology adoption, favorable government initiatives, and the growing demand for equipment.
Amid this backdrop, it could be wise to buy fundamentally strong industrial stocks Siemens Aktiengesellschaft (SIEGY), Vale S.A. (VALE), and Vontier Corporation (VNT). These stocks are A-rated (Strong Buy) in our proprietary rating system, POWR Ratings.
Before diving deeper into the fundamentals of these stocks, let’s discuss what’s shaping the industry’s prospects.
Macroeconomic challenges have impacted the industrial sector, with industrial production declining 0.6% sequentially in October. Similarly, manufacturing output fell 0.7%, with much of this decline attributed to a 10% drop in motor vehicles and parts production due to the UAW strikes at major manufacturers of motor vehicles.
However, mining output rose 0.4% sequentially in October and 2.2% year-over-year. The operating rate for mining increased 0.5 percentage points to 94.3%, a rate 7.9 percentage points above its long-run average.
Despite the challenges of high borrowing costs, tepid overseas economies, and uneven capital goods orders, the industrial sector is poised for long-term growth due to the widespread use and adoption of modern technology and smart manufacturing initiatives.
Industrial productivity is getting a boost from automation and modernization initiatives. Moreover, using technologies such as Artificial Intelligence (AI), machine learning, big data analytics, and the Internet of Things (IoT) are helping manufacturing processes become more efficient. The global Industry 4.0 market is projected to grow at a CAGR of 20.7% to reach $482 billion by 2032.
Additionally, favorable government initiatives such as the $1.2 trillion Bipartisan Infrastructure Bill, which was later signed into law called the Infrastructure Investment and Jobs Act, aims to provide $550 billion of new federal spending in America’s infrastructure, will boost the demand for metals, machinery, and other necessary industrial products.
Furthermore, the Inflation Reduction Act, signed into law last year, sought to boost domestic manufacturing. Such government initiatives are expected to set the stage for the industrial sector’s growth.
The industrial machinery market, encompassing robots, material handling equipment, packaging machinery, and machine tools, is poised for significant growth. According to Acumen Research and Consulting, it is projected to grow at a CAGR of 5.3%, reaching $1.04 trillion by 2032. Additionally, the global metal and metal manufactured products market is expected to reach $18.50 trillion by 2030, growing at a CAGR of 5.2%.
With these favorable trends in mind, let’s delve into the fundamentals of the three industrial stocks.
Siemens Aktiengesellschaft (SIEGY)
Headquartered in Munich, Germany, SIEGY is a technology company focusing on the areas of automation and digitalization. It operates through the Digital Industries, Smart Infrastructure, Mobility, Siemens Healthineers, and Siemens Financial Services (SFS) segments.
On December 5, 2023, SIEGY has acquired BuntPlanet, bolstering its water industry software portfolio with advanced solutions for smart metering solutions, water quality, asset management, and integration of hydraulic models and artificial intelligence for detecting leaks and other anomalies in the water networks.
This move enhances SIEGY's position in the digitalization of the water sector, providing customers with a more integrated and comprehensive solution for efficient water network management.
On November 30, 2023, SIEGY Mobility and European Locomotive Leasing Group (ELL) signed a framework agreement to deliver up to 200 further Vectron locomotives. This fourth framework agreement cements the enduring and formidable partnership between ELL and Siemens Mobility.
Siemens Mobility will actively support ELL in strengthening its competence further by providing vehicle operation, maintenance, and servicing. Furthermore, with the potential to expand the Vectron fleet to over 400 locomotives in the medium term, this accord solidifies SIEGY’s market presence and showcases its pivotal role in shaping Europe’s rail infrastructure landscape.
In terms of the trailing-12-month net income margin, SIEGY’s 10.22% is 68.5% higher than the 6.07% industry average. Likewise, its 38.13% trailing-12-month gross profit margin is 25.9% higher than the industry average of 30.28%. Furthermore, the stock’s 16.41% trailing-12-month Return on Common Equity is 34.6% higher than the industry average of 12.19%.
For the fiscal fourth quarter that ended September 30, 2023, SIEGY’s revenue increased 4% year-over-year to €21.39 billion ($23.12 billion). Its gross profit grew 7.3% from the year-ago value to €8.24 billion ($8.90 billion). The company’s cash flows from operating activities from continuing operations rose 32.7% over the prior-year quarter to €5.47 billion ($5.91 billion).
Its net income and EPS came in at €1.90 billion ($2.05 billion) and €2.14, respectively.
For the quarter ending December 31, 2023, SIEGY’s revenue is expected to increase 5.1% year-over-year to $20.39 billion. Its EPS for fiscal 2024 is expected to increase 35.6% year-over-year to $7.68. It surpassed the consensus EPS estimates in three of the trailing four quarters. The stock has gained 29.7% year-to-date to close the last trading session at $89.20.
SIEGY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
SIEGY has a B grade for Value, Stability, and Quality. It has ranked #2 out of 36 stocks in the B-rated Industrial – Manufacturing industry. In addition to the POWR Ratings highlighted above, you can check SIEGY ratings for Growth, Momentum, and Sentiment here.
Vale S.A. (VALE)
Headquartered in Rio de Janeiro, Brazil, VALE, together with its subsidiaries, produces and sells iron ore and iron ore pellets for use as raw materials in steelmaking in Brazil and internationally. The company operates through the Iron Solutions and Energy Transition Materials segments.
On November 8, 2023, VALE announced that it had signed a contract with Omani shipowner Asyad to install rotor sails on Valemax, the world’s largest ore carrier, enhancing energy efficiency and reducing emissions.
This initiative, part of VALE’s Ecoshipping program, demonstrates a commitment to decarbonizing maritime transportation, aligning with the company’s goal of reducing carbon emissions and providing valuable insights for the next generation of Guaibamax ships.
In terms of the trailing-12-month net income margin, VALE’s 23.01% is 286.1% higher than the 5.96% industry average. Likewise, its 34.91% trailing-12-month EBIT margin is 206.9% higher than the industry average of 11.38%. Furthermore, the stock’s 27.55% trailing-12-month Return on Common Equity is 261.8% higher than the industry average of 7.61%.
VALE’s net operating revenues for the third quarter that ended September 30, 2023, increased 7% year-over-year to $10.62 billion. The company’s adjusted EBIT from continuing operations increased 17.5% year-over-year to $3.40 billion. Its adjusted EBITDA from continuing operations rose 13.9% year-over-year to $4.18 billion.
The company’s gross profit also came in at $4.31 billion, up 18.9% over the prior-year quarter. In addition, its net income from continuing operations attributable to VALE’s shareholders came in at $2.84 billion. Also, its EPS came in at $0.66.
Street expects VALE’s revenue and EPS for the quarter ending December 31, 2023, to increase 6.6% and 9.4% year-over-year to $12.73 billion and $0.78, respectively. Over the past three months, the stock has gained 9.4% to close the last trading session at $14.84.
VALE’s positive outlook is reflected in its POWR Ratings. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It has an A grade for Quality and a B for Value and Sentiment. It is ranked #2 out of the 33 stocks in the Industrial – Metals industry. Click here to access the additional ratings of VALE for Growth, Momentum, and Stability.
Vontier Corporation (VNT)
VNT engages in the research and development, manufacture, sale, and distribution of technical equipment, components, software, and services for manufacturing, repairing, and servicing in the mobility ecosystem worldwide. It operates through two segments: Mobility Technologies and Diagnostics and Repair Technologies.
In terms of the trailing-12-month net income margin, VNT’s 10.65% is 354% higher than the 2.35% industry average. Likewise, its 53.85% trailing-12-month Return on Common Equity is significantly higher than the industry average of 1.27%. Furthermore, its 8.02% trailing-12-month Return on Total Assets is substantially higher than the industry average of 0.31%.
For the fiscal third quarter, which ended September 29, 2023, VNT’s sales amounted to $765.40 million. Its adjusted net earnings and EPS were $113.40 million and $0.73, respectively. Additionally, its non-GAAP adjusted free cash flow increased 48.1% year-over-year to $128.40 million.
Analysts expect VNT’s EPS for the quarter ending March 31, 2024, to increase 0.5% year-over-year to $0.68. Its revenue for the quarter ending June 30, 2024, is expected to increase 3.5% year-over-year to $791.36 million, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters. The stock has gained 77.1% year-to-date to close the last trading session at $34.24.
It’s no surprise that VNT has an overall rating of A, which translates to a Strong Buy in our POWR Ratings system.
Within the B-rated Industrial – Equipment industry, it is ranked #6 out of 91 stocks. It has a B grade for Value and Quality. To see VNT’s ratings for Growth, Momentum, Stability, and Sentiment, click here.
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.
SIEGY shares were trading at $91.21 per share on Thursday afternoon, up $2.01 (+2.25%). Year-to-date, SIEGY has gained 35.46%, versus a 25.01% 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.
The post 3 A-Rated Industrial Stocks to Buy for a Resilient December appeared first on StockNews.com