The industrial and manufacturing sector demonstrated continued strength last year, building on the momentum it gained emerging from the COVID-19 pandemic. However, the sector dealt with various macroeconomic challenges, including supply chain disruptions, high inflation, labor shortages, and economic uncertainty.
Despite macroeconomic headwinds, total industrial production grew 1.6% year-over-year in December 2022. Furthermore, increasing federal spending should boost the industrial sector’s growth.
More than a year into implementation, the Bipartisan Infrastructure Law has already provided $185 billion in funding for launching over 6,900 projects, including 2,800 bridge repair and replacement projects. The law is expected to drive demand for industrial goods through multiple projects nationwide.
According to a report by The Business Research Company, the industrial machinery market is projected to reach $708.30 billion in 2027, growing at a CAGR of 6.7%. Rapid technological advancement is expected to drive innovation in industrial machinery manufacturing, thereby boosting the industry’s growth.
Also, technologies like AI, big data analytics, and 3D printing are being increasingly used in manufacturing for improved productivity, lower operating costs, and high margins.
Investor’s interest in industrial stocks is evident from the Industrial Select Sector SPDR ETF’s (XLI) 4.1% returns over the past year. Given this backdrop, investors might consider buying industrial stocks General Electric Company (GE), Myers Industries, Inc. (MYE), and Watts Water Technologies, Inc. (WTS) this month.
General Electric Company (GE)
GE is a high-tech industrial company that operates in Europe, China, Asia, the Americas, the Middle East, and Africa. The company provides gas and steam turbines, a full balance of plant, upgrade, and service solutions, as well as data-leveraging software for power generation. It serves industrial, government, and other customers.
On February 7, 2023, GE Digital signed a multiyear strategic collaboration agreement with Amazon Web Services, Inc. (AWS) to help utilities accelerate grid modernization. GE Digital will deliver a new grid operating software platform, Grid OS, and cloud-enabled solutions. Through this collaboration, GE Digital and AWS plan to deliver intelligent grid orchestration solutions and boost their profitability.
On December 14, 2022, GE Renewable Energy announced that it had signed a strategic partnership agreement with Hyundai Electric.
Under this agreement, GE would bring its offshore expertise and the Haliade-X technology while remaining the prime contractor toward customers, and Hyundai Electric would serve as a manufacturing associate to help localize the assembly of offshore wind turbines and generators in South Korea. This partnership is expected to help the company serve its local customers better.
For the fiscal fourth quarter that ended December 31, 2022, GE’s organic revenues increased 11.2% year-over-year to $21.71 billion. The company’s adjusted profit grew 37.3% year-over-year to $2.16 billion. Its adjusted EPS was $1.24, compared to $0.82 in the prior year’s quarter. In addition, free cash flow came in at $4.29 billion, up 15.6% year-over-year.
Analysts expect GE’s EPS and revenue for the next fiscal year (ending December 2024) to increase 77.8% and 7.6% year-over-year to $3.43 and $66.81 billion, respectively. Moreover, the company has surpassed the consensus revenue estimates in three of the trailing four quarters.
The stock has gained 3.6% over the past month to close the last trading session at $82.68.
GE’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
GE has a B grade for Growth and Value. Within the A-rated Industrial-Manufacturing industry, it is ranked #11 out of 36 stocks.
We have also given GE grades for Sentiment, Momentum, Stability, and Quality. Get all GE ratings here.
Myers Industries, Inc. (MYE)
MYE engages in manufacturing a wide range of polymer and metal products and distribution of tire service supplies. It operates through The Material Handling and Distribution segments. The company sells its products under the Akro-Mils, Jamco, Buckhorn, Ameri-Kart, and Trilogy Plastics brands, among others.
In October 2022, the company introduced a broad portfolio of reusable packaging solutions at Pack Expo 2022. The new set of solutions is expected to be highly demanded by various industries, such as industrial manufacturing, food processing, retail/wholesale distribution, agriculture, and automotive, which should boost the company’s revenues.
In the third quarter that ended September 30, 2022, MYE’s net sales increased 14% year-over-year to $228.07 million. Its adjusted EBITDA grew 57% year-over-year to $27.20 million. The company’s adjusted net income increased 76.9% year-over-year to $15.02 million. Also, its adjusted earnings per share came in at $0.41, an increase of 78.3% year-over-year.
Furthermore, the cash flow provided by operations was $16.50 million, and free cash flow was $9.80 million, compared with cash flow for operations of $7.80 million and negative free cash flow of $13.80 million for the third quarter last year.
Analysts expect MYE’s revenue and EPS for the fiscal year (ended December 2023) to increase 19.2% and 70.1% year-over-year to $907.33 million and $1.65, respectively. Also, the company has topped the consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.
In addition, the company’s revenue and EPS for fiscal 2023 are expected to grow 7.7% and 15.5% from the previous year to $977.09 million and $1.91, respectively. Shares of MYE have gained 41.6% over the past year to close the last trading session at $23.83. The stock has gained 8.5% over the past six months.
It’s no surprise that MYE has an overall rating of A, which translates to a Strong Buy in our POWR Ratings system. The stock has a B grade for Growth, Stability, and Quality.
MYE is ranked #4 out of 36 stocks in the A-rated Industrial – Manufacturing industry.
We have also given MYE grades for Sentiment, Momentum, and Value. Get all MYE ratings here.
Watts Water Technologies, Inc. (WTS)
WTS designs, manufactures, and sells products and solutions that manage and conserve the flow of fluids and energy into, through, and out of commercial and residential buildings. The company operates primarily in the Americas, Europe, the Asia-Pacific, the Middle East, and Africa.
WTS’ CEO Robert J. Pagano Jr. said, “We currently expect to see softer market conditions as 2023 progresses and have incorporated these expectations into our outlook and are taking actions as needed to adjust our cost structure. Our balance sheet and cash flow remain strong. We are confident that our experienced team is well positioned to navigate these challenging macro-economic conditions.”
In the fiscal fourth quarter that ended December 31, 2022, WTS’ net sales increased 5.9% year-over-year to $501.90 million, and its gross profit grew 9.7% year-over-year to $218.60 million. The company’s operating income was $67.20 million, up 7.4% year-over-year.
In addition, the company’s net income came in at $68.60 million, an increase of 71.1% year-over-year, while its adjusted EPS increased 12.7% from the year-ago value to $1.60.
The consensus revenue estimate of $2.04 billion for the fiscal year (ending December 2023) represents 3.7% growth from the prior year. The consensus EPS estimate of $7.22 for the ongoing year indicates a 4.6% year-over-year rise. Moreover, WTS has an impressive earnings surprise history as it has surpassed the consensus EPS and revenue estimates in all four trailing quarters.
Shares of WTS have gained 14.3% over the past six months and 26.6% over the past year to close the last trading session at $177.48.
WTS’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.
WTS has an A grade for Quality and a B for Stability. Within the same industry, it is ranked #6 out of 36 stocks. To see additional POWR Ratings for Growth, Value, Momentum, and Sentiment for WTS, click here.
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GE shares were unchanged in premarket trading Tuesday. Year-to-date, GE has gained 62.80%, versus a 7.95% 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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