3 Hot Industrial Stocks to Add to Your Investment Portfolio The escalating demand for advanced machinery and solutions augurs prosperity for the industrial sector. Given this backdrop, quality industrial stocks Techtronic Industries Company (TTNDY), Powell Industries (POWL), and Tennant Company...
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The escalating demand for advanced machinery and solutions augurs prosperity for the industrial sector. Given this backdrop, quality industrial stocks Techtronic Industries Company (TTNDY), Powell Industries (POWL), and Tennant Company (TNC) could be lucrative portfolio additions now. Read on….
The industrial sector thrived despite facing broader macroeconomic challenges. The upward trajectory is particularly noticeable within the industrial machinery industry, which is currently riding a wave of progression thanks to rapid industrialization, automation, smart manufacturing, and amplified governmental aid.
Given this backdrop, it could be wise to buy fundamentally strong industrial machinery stocks: Techtronic Industries Company Limited (TTNDY), Powell Industries, Inc. (POWL), and Tennant Company (TNC) now.
Despite geopolitical instability and consistent interest rate hikes from the Federal Reserve, the industrial sector exhibits remarkable resilience. It is poised to thrive thanks to the sweeping surge in global economic activities. Industrial production in the United States grew 0.3% year-over-year in September.
Meanwhile, the Asia-Pacific region is undergoing swift industrialization, resulting in heightened demand for high-tech automated industrial machinery. The subsequent uptick in demand is predicted to contribute significantly to the consistent growth trajectory of the industrial machinery sector.
In addition, technological breakthroughs in the Internet of Things (IoT), Artificial Intelligence (AI), data analytics, and robotics are providing added benefits to the industry. Manufacturers are increasingly harnessing these advancements to optimize the productivity and efficiency of their industrial machinery.
Moreover, supportive governmental policies like the Inflation Reduction Act, Bipartisan Infrastructure Law, and the CHIPS and Science Act are poised to provide the necessary impetus to stimulate domestic manufacturing. Consequently, the global industrial machinery market is projected to reach $1.23 trillion by 2032, growing at a CAGR of 6%.
Reflective of the upbeat market sentiment, the Industrial Select Sector SPDR Fund's (XLI) 3.3% gain over the past year substantiates investors' interest in industrial stocks.
Given the industry tailwinds, it's time to examine the fundamentals of the top three stocks to buy in the A-rated Industrial - Machinery industry, starting with the third in line.
Stock #3: Techtronic Industries Company Limited (TTNDY)
Based in Kwai Chung, Hong Kong, TTNDY designs, manufactures, and markets power tools, outdoor power equipment, and floor care and cleaning products in North America, Europe, and internationally. The company operates through Power Equipment and Floorcare & Cleaning Segments.
Its annual dividend of $1.18 per share translates to a dividend yield of 2.60% on the current share price. Its four-year average dividend yield is 1.58%. The company's dividend payouts have grown at a CAGR of 18.1% over the past three years and 18.9% over the past five years. The company has paid dividends for 16 consecutive years.
TTNDY's trailing-12-month gross profit margin of 39.45% is 30% higher than the industry average of 30.35%. Its trailing-12-month asset turnover ratio of 0.97x is 22% higher than the 0.80x industry average. Its trailing-12-month cash from operations of $1.87 billion is 626.8% higher than the industry average of $256.81 million.
TTNDY's levered free cash flow grew at CAGRs of 27% and 38.8% over the past three and five years, respectively, while its total assets grew at 15.6% and 18% CAGRs over the same periods.
For the first half that ended June 30, 2023, TTNDY's revenue stood at $6.88 billion, while its gross profit margin was 39.3%. Profit for the period attributable to the owners of the company and earnings per share stood at $475.78 million and 25.92 cents, respectively. Moreover, net cash from operating activities increased significantly from the year-ago period to $693.77 million.
TTNDY's revenue for the fiscal year ending December 2023 is expected to increase 1.9% year-over-year to $13.51 billion, while EPS is expected to come at $2.60.
Shares of TTNDY have gained 1.3% over the past five days to close the last trading session at $45.36.
TTNDY's robust prospects are reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
TTNDY has a B grade for Value, Momentum, and Stability. It is ranked #18 out of 78 stocks in the A-rated Industrial - Machinery industry.
Click here for the additional ratings of TTNDY (Growth, Sentiment, and Quality).
Stock #2: Powell Industries, Inc. (POWL)
POWL designs, develops, manufactures, sells, and services custom-engineered equipment and systems to distribute, control, and monitor electrical energy. The company's principal products include integrated power control room substations, electrical houses, medium-voltage circuit breakers, and motor control centers.
POWL's Board of Directors recently declared a quarterly dividend on the company's common stock of $0.2625 per share, payable to the shareholders on December 13, 2023.
Its annual dividend of $1.05 per share translates to a dividend yield of 1.39% on the current share price. Its four-year average dividend yield is 3.43%. The company has paid dividends for nine consecutive years.
POWL's trailing-12-month levered FCF margin of 17.77% is 213.5% higher than the industry average of 5.67%. Its trailing-12-month asset turnover ratio of 1.16x is 46% higher than the 0.80x industry average.
POWL's revenue grew 5.8% and 9.8% CAGRs over the past three and five years, respectively. Moreover, its EBITDA and EBIT have grown at 14.5% and 21.6% CAGRs over the past three years, respectively.
POWL's revenues increased 42% year-over-year to $192.37 million in the fiscal third quarter that ended June 30, 2023. The company's operating income grew significantly from the prior-year quarter to $21.55 million. Its net income and earnings per share stood at $18.45 million and $1.52, up 103.7% and 100% year-over-year, respectively.
As of June 30, 2023, POWL's total current assets stood at $547.25 million, compared to $369.98 million as of September 30, 2022.
POWL's revenue and EPS for the fiscal fourth quarter ending September 2023 are expected to rise 21% and 115.2% year-over-year to $196.79 million and $1.21, respectively. Additionally, POWL topped consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.
Shares of POWL have gained 210.7% over the past year to close the last trading session at $76.65. It has also gained 91.3% over the past six months.
POWL's strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
The stock has an A grade for Growth and Quality and a B for Value and Sentiment. Within the same industry, it is ranked #12.
For the POWL's additional ratings (Stability and Momentum), click here.
Stock #1: Tennant Company (TNC)
TNC designs, manufactures, and markets floor cleaning equipment in the Americas, Europe, the Middle East, Africa, and the Asia Pacific.
Last month, TNC expanded its offerings and unveiled two new models of walk-behind floor scrubbers – the T260 and the T391, which would help serve customers across all facility types. At the heart of these innovations is presenting customers with an increased variety of cleaning solutions at competitive prices.
TNC returned $6.7 million to shareholders through dividends and share repurchases. It announced a 5.7% increase in the quarterly cash dividend to $0.28 per share, marking the 52nd consecutive year the company has increased its annual cash dividend payout.
Its annual dividend of $1.12 per share translates to a dividend yield of 1.41% on the current share price. Its four-year average dividend yield is 1.34%. The company's dividend payouts have grown at a CAGR of 6.4% over the past three years and 4.8% over the past five years.
Its trailing-12-month gross profit and EBIT margins of 40.73% and 11.33% are 34.2% and 17.1% higher than the industry averages of 30.35% and 9.68%, respectively. Its trailing-12-month ROCE of 19.93% is 50.8% higher than the industry average of 13.22%.
TNC's revenue grew at 4.3% and 1.3% CAGRs over the past three and five years, respectively. Moreover, its EBITDA and EBIT have grown at 10.4% and 17.2% CAGRs over the past three years, respectively.
For the fiscal third quarter that ended September 30, 2023, TNC's net sales increased 15.9% year-over-year to $304.70 million, while gross profit stood at $132 million, up 31.1% from the year-ago quarter. The company's adjusted EBITDA increased 35.8% year-over-year to $45.90 million.
Also, its adjusted net income and adjusted earnings per share came in at $25.40 million and $1.34, representing increases of 36.6% and 36.7% from the prior-year quarter. For the nine months that ended September 30, TNC's net cash provided by operating activities stood at $124.60 million, compared to net cash used in operating activities of $38.80 million in the year-ago period.
TNC increased its full-year 2023 guidance and expects net sales between $1.23 billion and $1.25 billion and adjusted EBITDA between $190 million and $200 million.
Street expects TNC's revenue to increase 4% year-over-year to $302.63 million in the fiscal fourth quarter ending December 2023. Its EPS is expected to be $1.12 for the same quarter. Additionally, TNC topped consensus EPS estimates in each of the trailing four quarters and revenue estimates in three of the trailing four quarters.
The stock has gained 20.6% year-to-date to close the last trading session at $74.22. Over the past year, it gained 27.4%.
It is no surprise that TNC has an overall A rating, equating to a Strong Buy in our POWR Ratings system.
Also, the stock has a B grade for Growth, Value, Momentum, Sentiment, and Quality. It is ranked first within the same industry.
Get additional POWR Ratings for TNC (Stability) here.
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TTNDY shares were unchanged in premarket trading Wednesday. Year-to-date, TTNDY has declined -16.46%, versus a 10.57% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy.Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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