{"id":3268,"date":"2024-04-29T17:12:41","date_gmt":"2024-04-29T17:12:41","guid":{"rendered":"http:\/\/blog.valuengine.com\/?p=3268"},"modified":"2024-04-29T17:12:41","modified_gmt":"2024-04-29T17:12:41","slug":"industrial-strength","status":"publish","type":"post","link":"http:\/\/blog.valuengine.com\/index.php\/industrial-strength\/","title":{"rendered":"Industrial Strength"},"content":{"rendered":"

Existing subscribers alert: ValuEngine is preparing to launch a completely redesigned website in the coming weeks.\u00a0 Alerts and more information will be sent a few days prior to the launch.<\/span><\/p>\n

Financial journals have been deluged with stories to the effect that all of the 2023 gains in the S&P 500 were caused by 7 (or fewer) stocks, all of which relate to big tech, artificial intelligence and \u201cthe new economy.\u201d It infers that all other sectors, including \u201cold economy\u201d Industrials, did not do as well.<\/span><\/p>\n

The \u201cproof of the pudding\u201d is provided by attribution analysis.\u00a0 The cap-weighted S&P 500 beat the equally weighted S&P 500 by an unprecedented margin (nearly +13.00%).\u00a0 The S&P 500 also handily beat the price-per-share-weighted Dow Jones Industrial Average.\u00a0 But don\u2019t be misled by the Dow\u2019s nomenclature.\u00a0 Over the decades, the word \u201cIndustrial\u201d has lost its meaning as the Dow now includes financial stocks, stocks that do not pay dividends and stocks not on the S&P 500.\u00a0 This is not your grandfather’s DJIA.\u00a0<\/span><\/p>\n

All 5,000 stocks, 16 sector groups, 140 industries, and 500 ETFs have been updated: <\/b>Two-week free trial:<\/b> www.ValuEngine.com<\/b><\/a>\u00a0<\/b><\/h6>\n

But what about old-economy industrial stocks? Are there no longer buying opportunities in this sector?\u00a0 Actually, quite a few experts predict a mean-reversion drop in 2024 for \u201cThe Magnificent Seven\u201d stocks that dominated last year accompanied by a reallocation to other sectors. The industrial sector has been listed prominently as a candidate for the shift.<\/span><\/p>\n

As I was writing this article, my email featured an analytic report on the industrial sector by a Fidelity Select portfolio manager.\u00a0 He was bullish on the sector.\u00a0 Here\u2019s a synthesis of his rationale.<\/span><\/p>\n

After decades of underinvestment in the US industrial base, supply-chain difficulties during the pandemic and geopolitical tension have highlighted the needs for greater US self-sufficiency. As a result, hundreds of billions of dollars in federal funding and other incentives are set to pour into infrastructure, onshoring\/reshoring, combating climate change, and the “electrification of everything.\u201d\u00a0 This massive investment should help drive long-term growth for the sector.<\/span><\/p>\n

A sample of the top stock picks mentioned in the article includes:<\/span><\/p>\n

Current ValuEngine reports on these stocks or ETFS can be viewed<\/b> HERE<\/b>
\n<\/span><\/a><\/h6>\n

BA \u2013<\/b>The Boeing Company, together with its subsidiaries, designs, develops, manufactures, sells, services, and supports commercial jetliners, military aircraft, satellites, missile defense, human space flight and launch systems, and services worldwide.\u00a0 In the news frequently in the past six months, Boeing\u2019s top finance executive warned investors that the company\u2019s production problems would result in a steep hit to its cash flow this quarter.\u00a0\u00a0<\/span><\/p>\n

HWM\u2013 <\/b>Howmet Industries – <\/span>Howmet Aerospace Inc. provides advanced engineered solutions for the aerospace and transportation industries in the United States, Japan, France, Germany, the United Kingdom, Mexico, Italy, Canada, Poland, China, and internationally. It operates through four segments: Engine Products, Fastening Systems, Engineered Structures, and Forged Wheels.\u00a0The company was formerly known as Arconic Inc. Howmet Aerospace Inc,. was founded in 1888, and is based in Pittsburgh, Pennsylvania.<\/span><\/p>\n

PWR<\/b> \u2013 Q<\/span>uanta Services, Inc. provides infrastructure solutions for the electric and gas utility industry, renewable energy, communications, and pipeline and energy industries in the United States, Canada, Australia, and internationally.\u00a0 The company was formerly known as Fabal Construction, Inc. and changed its name to Quanta Services, Inc. in November 1997. The company was incorporated in 1997 and is headquartered in Houston, Texas.\u00a0<\/span><\/p>\n

These three stocks, all rated <\/span>3 <\/b>(Hold) by ValuEngine, are all included in this week\u2019s analysis grid below.\u00a0 Additionally, ValuEngine maintains a Sector Report on the Industrial Products Sector.\u00a0 It comprises 240 stocks. Taken together, these stocks account for 3% of total market cap and also 3% of total revenues of the aggregate ValuEngine Stock universe.\u00a0 The equal-weighted rating for all the stocks in the sector is also <\/span>3<\/b> (Hold).\u00a0\u00a0<\/span><\/p>\n

Not all Industrial sector stocks are rated in the middle of our universe, however.\u00a0 Three Industrial sector stocks garner the highest rating, <\/span>5 <\/b>(Strong Buy). The group includes:<\/span><\/p>\n

XRX \u2013 <\/b>Xerox Inc. operates through two segments, Print and Other; and FITTLE. The Print and Other segment designs, develops, and sells document systems, solutions, and services; and IT and software products and services. The FITTLE segment offers financing solutions for direct channel customer purchases; and lease financing to end-users.\u00a0 <\/span>Xerox was founded in 1903 and is headquartered in Norwalk, Connecticut.<\/span><\/p>\n

LZ \u2013 <\/b>LegalZoom.\u00a0 LegalZoom.com, Inc., together with its subsidiaries, operates an online platform that supports the legal, compliance, and business management needs of small businesses and consumers in the US.\u00a0 <\/span>The company was incorporated in 1999 and is headquartered in Glendale, California.<\/span><\/p>\n

GTLS \u2013 <\/b>Chart Industries <\/span>engages in the designing, engineering, and manufacturing of process technologies and equipment for the gas and liquid molecules in the United States and internationally. The company operates in four segments: Cryo Tank Solutions, Heat Transfer Systems, Specialty Products, and Repair, Service & Leasing.\u00a0 Chart Industries was founded in 1859 and is headquartered in Ball Ground, Georgia.<\/span><\/p>\n

We selected the Vanguard Industrial Sector ETF, <\/span>VIS<\/b>, in lieu of the SPDR<\/span> Select Industrial Sector ETF as the study\u2019s standard of comparison. Given the breadth of the sector, the much broader <\/span>VIS <\/b>seemed more representative of the industry as a whole.\u00a0\u00a0\u00a0<\/span><\/p>\n

Interestingly, the <\/span>VIS <\/b>ETF gets a <\/span>2 <\/b>(Sell) rating from ValuEngine, below the 3 posted by the entire equally weighted sector.\u00a0 This relates to a question I frequently get at presentations.\u00a0 Does ValuEngine give any stocks a sell rating?\u00a0 Yes, as a quantitatively based ratings service, the weekly ratings distributions tend to be symmetric with both a mean and a median very close to 3.0.\u00a0 In that spirit, here are three stocks rated <\/span>1 <\/b>(Strong Sell, our lowest rating) this week: Alcoa Corp. <\/span>(AA<\/b>); Norsk Hydro ADR (<\/span>NHYDY<\/b>); and Atmus Filtration (<\/span>ATMU<\/b>).<\/span><\/p>\n

Back to the potential buying opportunities, here is the comparative statistical data for this analysis.<\/span><\/p>\n

Current ValuEngine reports on these stocks or ETFS can be viewed<\/b> HERE<\/b><\/a><\/h6>\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
Ticker<\/b><\/td>\nBA<\/b><\/td>\nHWM<\/b><\/td>\nPWR<\/b><\/td>\nXRX<\/b><\/td>\nLZ<\/b><\/td>\nGTLS<\/b><\/td>\nVIS<\/i><\/b><\/td>\n<\/tr>\n
<\/td>\n<\/tr>\n
Stock Name<\/b><\/td>\nBoeing Co<\/span><\/td>\nHowmet Industries<\/span><\/td>\nQuanta Services<\/span><\/td>\nXerox<\/span><\/td>\nLegalZoom<\/span><\/td>\nChart Industries<\/span><\/td>\nVanguard<\/span> Industrial Sector <\/span>ETFs<\/span><\/td>\n<\/td>\n<\/tr>\n
Market Cap, (Bllns.)<\/span><\/td>\n104.00<\/b><\/td>\n26.27<\/span><\/td>\n36.25<\/span><\/td>\n2.01<\/span><\/td>\n2.29<\/span><\/td>\n6.26\u00a0<\/span><\/td>\n2.21<\/span><\/td>\n<\/td>\n<\/tr>\n
ValuEngine Rating<\/span><\/td>\n3<\/b><\/td>\n3<\/b><\/td>\n3<\/span><\/td>\n5<\/b><\/td>\n5<\/b><\/td>\n5<\/b><\/td>\n2<\/b><\/td>\n<\/td>\n<\/tr>\n
VE Forecast 3-mo. Price Return<\/span><\/td>\n1.29%<\/span><\/td>\n2.90%<\/span><\/td>\n2.98%<\/span><\/td>\n2.66%<\/span><\/td>\n4.79%<\/b><\/td>\n4.56%<\/span><\/td>\n1.67%<\/span><\/td>\n<\/td>\n<\/tr>\n
<\/td>\n<\/tr>\n
VE Forecast 1-yr. Price Return<\/span><\/td>\n2.24%<\/span><\/td>\n0.37%<\/span><\/td>\n-2.13%<\/span><\/td>\n15.54%<\/b><\/td>\n13.95%<\/span><\/td>\n13.25%<\/span><\/td>\n4.62%<\/span><\/td>\n<\/td>\n<\/tr>\n
Last mo. Price Return<\/span><\/td>\n-14.72%<\/span><\/td>\n-4.45%<\/span><\/td>\n3.24%<\/b><\/td>\n-15.97%<\/span><\/td>\n-3.40%<\/span><\/td>\n1.08%<\/span><\/td>\n-1.35%<\/span><\/td>\n<\/td>\n<\/tr>\n
Last 3 mo. Price Return<\/span><\/td>\n-14.95%<\/span><\/td>\n19.31%<\/span><\/td>\n23.50%<\/b><\/td>\n0.68%<\/span><\/td>\n15.41%<\/span><\/td>\n16.35%<\/span><\/td>\n10.04%<\/span><\/td>\n<\/td>\n<\/tr>\n
Last 6 mo. Price Return<\/span><\/td>\n-7.78%<\/span><\/td>\n43.54%<\/b><\/td>\n41.0%<\/span><\/td>\n12.41%<\/span><\/td>\n15.84%<\/span><\/td>\n-7.0%<\/span><\/td>\n20.63%<\/span><\/td>\n<\/td>\n<\/tr>\n
Historic 1-Yr. Price Return<\/span><\/td>\n-16.82%<\/span><\/td>\n49.34%<\/b><\/td>\n49.05%<\/span><\/td>\n9.90%<\/span><\/td>\n32.07%<\/span><\/td>\n15.65%<\/span><\/td>\n26.68%<\/span><\/td>\n<\/td>\n<\/tr>\n
Historic 5-Yr Ann. Price Return<\/span><\/td>\n-13.63%<\/span><\/td>\n25.51%<\/span><\/td>\n38.58%<\/b><\/td>\n-11.61%<\/b><\/td>\n-37.92%<\/span><\/td>\n11.97%<\/span><\/td>\n11.14%<\/span><\/td>\n<\/td>\n<\/tr>\n
Volatility<\/span><\/td>\n49.59%<\/span><\/td>\n44.1%<\/span><\/td>\n32.04%<\/b><\/td>\n44.67%<\/b><\/td>\n49.40%<\/span><\/td>\n62.26%<\/span><\/td>\n22.51%<\/span><\/td>\n<\/td>\n<\/tr>\n
Sharpe Ratio<\/span><\/td>\n-0.27<\/span><\/td>\n0.58<\/span><\/td>\n1.20<\/b><\/td>\n-0.26<\/span><\/td>\n-0.77<\/span><\/td>\n0.19<\/span><\/td>\n0.49<\/span><\/td>\n<\/td>\n<\/tr>\n
Beta<\/span><\/td>\n1.62<\/span><\/td>\n1.34<\/span><\/td>\n1.10<\/b><\/td>\n1.69<\/span><\/td>\n1.27<\/span><\/td>\n1.79<\/span><\/td>\n1.14<\/span><\/td>\n<\/td>\n<\/tr>\n
Undervaluation Percentile<\/span><\/td>\n25<\/span><\/td>\n9<\/span><\/td>\n9<\/span><\/td>\n71<\/b><\/td>\n61<\/span><\/td>\n85<\/span><\/td>\n32<\/span><\/td>\n<\/td>\n<\/tr>\n
P\/B Ratio<\/span><\/td>\nNeg.<\/span><\/td>\n6.51<\/span><\/td>\n41.42<\/span><\/td>\n0.73<\/b><\/td>\n25<\/span><\/td>\n2.13<\/span><\/td>\n3.42<\/span><\/td>\n<\/td>\n<\/tr>\n
P\/E Ratio<\/span><\/td>\nNeg.<\/span><\/td>\n32.83<\/span><\/td>\n38.03<\/span><\/td>\n9.54<\/b><\/td>\n71.82<\/span><\/td>\n22.72<\/span><\/td>\n24.80<\/span><\/td>\n<\/td>\n<\/tr>\n
P\/S Ratio<\/span><\/td>\n1.34<\/span><\/td>\n3.96<\/span><\/td>\n1.74<\/span><\/td>\n0.29<\/b><\/td>\n3.47<\/span><\/td>\n1.87<\/span><\/td>\n3.29<\/span><\/td>\n<\/td>\n<\/tr>\n
PEG Ratio<\/span><\/td>\n0.20<\/span><\/td>\n2.00<\/span><\/td>\n1.75<\/span><\/td>\n0.25<\/b><\/td>\n0.68<\/span><\/td>\n0.25<\/b><\/td>\n3.18<\/span><\/td>\n<\/td>\n<\/tr>\n
EPS Growth<\/span><\/td>\n145.19%<\/b><\/td>\n16.41%<\/span><\/td>\n21.71%<\/span><\/td>\n37.65%<\/span><\/td>\n105.88%<\/span><\/td>\n92.48%<\/span><\/td>\n10.51%<\/span><\/td>\n<\/td>\n<\/tr>\n
Div. Yield<\/span><\/td>\n0%<\/span><\/td>\n0.%<\/span><\/td>\n0.1%<\/span><\/td>\n6.2%<\/b><\/td>\n0%<\/span><\/td>\n0%<\/span><\/td>\n1.2%<\/span><\/td>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n
<\/h6>\n
Financial Advisory Services based on ValuEngine research available:\u00a0 <\/b>www.ValuEngineCapital.com<\/b><\/a><\/h6>\n

Observations<\/b><\/p>\n

    \n
  1. Boeing (<\/span>BA)<\/b>, Xerox (<\/span>XRX)<\/b> and LegalZoom (<\/span>LZ<\/b>) are all in turnaround mode after posting annualized returns in the negative double digits during the previous 5 years.\u00a0 In contrast, the other three all had double-digit positive returns during the same time period with Quanta Services (<\/span>PWR<\/b>) leading the way with an impressive 38.6% annualized five-year return. Howmet Industries (<\/span>HWM<\/b>) posted a healthy 25.5% annualized gain while Chart Industries (<\/span>GLTS<\/b>) came in at nearly 12%.\u00a0 All three eclipsed the 5-year annualized return of 11.1% posted by <\/span>VIS <\/b>representing the sector as a whole.<\/span><\/li>\n
  2. Wrapping up historical performance for shorter periods, <\/span>PWR <\/b>was #1 for the 1-month and 3-month periods while <\/span>HWM <\/b>fared best in the 6-month period at nearly 44% and the 12-month period at 49%.<\/span><\/li>\n
  3. XRX, LZ <\/b>and <\/span>GLTS <\/b>all are forecast for 13%-or-greater 12 month price-gains by ValuEngine\u2019s predictive model.\u00a0 On the other end of the spectrum, the only negative 12-month forecast belongs to Quanta Services (<\/span>PWR<\/b>) in what could be seen as a bit of mean reversion.<\/span><\/li>\n
  4. The ValuEngine valuation model \u2013 which is independent from the predictive model \u2013 shows signs that all 3 stocks mentioned in the article by the Fidelity Portfolio Manager are a bit overvalued right now.\u00a0 91% of universe stocks are more undervalued than <\/span>HWM <\/b>and <\/span>PWR.\u00a0 <\/b>The third stock, Boeing<\/span> (BA) <\/b>is less undervalued than 75% or the universe even after having suffered a large selloff in the past 12 months.\u00a0 <\/span><\/li>\n
  5. The three stocks selected by the forecast model, XRX, LZ <\/b>and <\/span>GTLS<\/b>:<\/span> LegalZoom is more undervalued than 61% or the universe.\u00a0 For Xerox and Chart Industries, the undervaluation percentile statistic rises to 71% and 85% respectively.\u00a0 <\/span>XRX<\/b> leads all the stocks in traditional value ratios as well. It has just a 9.6 P\/E ratio and an 0.7 Price-to-Book Ratio and is selling at 0.25% of its earnings growth rate.\u00a0\u00a0<\/span><\/li>\n<\/ol>\n

    In summary, those looking to move funds away from the magnificent seven may find a number of stocks to like in the Industrials Sector.\u00a0 All six stocks covered here are probably worth at least cursory research efforts.\u00a0 Two of the three stocks mentioned by Fidelity, Quanta Systems and Howmet Industries, have strong earnings growth outlooks and merit considerations as long-term holdings.\u00a0 Given outstanding lawsuits, Boeing is a bit more speculative in the short-term.\u00a0 However, it may be for just this reason that some analysts consider it a buying opportunity.\u00a0 The three stocks rated as strong buys on a potential price-gain basis, Xerox, Chart Industries and LegalZoom look attractive in terms of earnings growth potential and valuation.\u00a0 However, they are smaller in market cap and higher in volatility, two factors that some may consider problematic.\u00a0 As always, it is crucial to do one\u2019s own research.\u00a0\u00a0<\/span><\/p>\n

    _______________________________________________________________<\/span><\/p>\n

    By Herbert Blank<\/b><\/h5>\n
    Senior Quantitative Analyst, ValuEngine Inc<\/b><\/h5>\n
    www.ValuEngine.com<\/b><\/a><\/h5>\n
    support@ValuEngine.com<\/b><\/h5>\n
    All of the approximately 5,000 stocks, 16 sector groups, 140 industries, and 600 ETFs have been updated on<\/b> www.ValuEngine.com<\/b><\/a><\/h5>\n
    Financial Advisory Services based on ValuEngine research available through<\/b> ValuEngine Capital Management, LLC<\/b><\/a><\/h5>\n
    Free Two-Week Trial to all 5,000 plus equities covered by ValuEngine<\/b> HERE<\/b><\/a><\/h5>\n

    Subscribers log in<\/b> HERE<\/b><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

    Existing subscribers alert: ValuEngine is preparing to launch a completely redesigned website in the coming weeks.\u00a0 Alerts and more information will be sent a few days prior to the launch. Financial journals have been deluged with stories to the effect that all of the 2023 gains in the S&P 500 were caused by 7 (or … Read more<\/a><\/p>\n","protected":false},"author":7,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[130,1,39],"tags":[559,65,1627,176,1731,2325,2331,2330,2329,2327,2326,1510,1699,1687,1659,2324,2328,968],"_links":{"self":[{"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/posts\/3268"}],"collection":[{"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/users\/7"}],"replies":[{"embeddable":true,"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/comments?post=3268"}],"version-history":[{"count":1,"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/posts\/3268\/revisions"}],"predecessor-version":[{"id":3269,"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/posts\/3268\/revisions\/3269"}],"wp:attachment":[{"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/media?parent=3268"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/categories?post=3268"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/blog.valuengine.com\/index.php\/wp-json\/wp\/v2\/tags?post=3268"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}