General Electric (GE) and Watts Water Technologies (WTS): Do These Stocks Have Some Momentum in Them? Lucrative government investments and rising technological advancements are expected to propel the manufacturing industry's growth and profitability in the upcoming years. But let's find out if manufacturing stocks General Electric...
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Lucrative government investments and rising technological advancements are expected to propel the manufacturing industry's growth and profitability in the upcoming years. But let's find out if manufacturing stocks General Electric (GE) and Watts Water Technologies (WTS) possess solid momentum in them. Read on to learn my view….
Despite various macroeconomic headwinds, the manufacturing sector is well-positioned for significant growth and expansion due to rapid industrialization, favorable government initiatives and funding, and the growing adoption of emerging digital technologies.
Given the industry's promising growth prospects, fundamentally sound manufacturing stocks General Electric Company (GE) and Watts Water Technologies, Inc. (WTS), which possess robust momentum attributes, could be worth adding to your portfolio now.
Despite an uncertain economic environment, the manufacturing industry has demonstrated strength in 2022 and continues to grow significantly this year, as indicated by sustained industrial production. U.S. manufacturing output rebounded at a 1.5% annualized rate in the second quarter after declining at a 0.2% pace in the January-March period.
Factory output, which had also contracted during the fourth quarter of 2022, was driven by a 36.7% surge in the production of motor vehicles and parts in the second quarter.
Moreover, supportive government policies and investments are expected to boost domestic manufacturing. In August 2022, President Joe Biden signed into law the Bipartisan CHIPS and Science Act, which will revitalize American manufacturing, strengthen supply chains, and accelerate the industries of the future.
In addition, the Bipartisan Infrastructure Investment and Jobs Act, signed into law in November 2021, authorized $550 billion in new federal spending over the next five years, covering everything from bridges and roads to the nation's public transit, broadband, water, and energy systems.
Manufacturers increasingly recognize the need for smart manufacturing technology and invest more in digital transformation. Manufacturing companies are implementing emerging technologies such as artificial intelligence (AI), the Internet of Things (IoT), machine learning (ML), and data and analytics to boost growth and profitability.
According to a report by Grand View Research, the global smart manufacturing market is projected to reach $787.54 billion by 2030, growing at a 14.9% CAGR. Meanwhile, the U.S. smart manufacturing market is anticipated to grow at a CAGR of 13.6% from 2023 to 2030.
The smart manufacturing market should expand at a fast rate due to several factors like growing Industry 4.0 adoption, rising focus on industrial automation in manufacturing processes, increased government engagement in supporting industrial automation, and more emphasis on regulatory compliance.
Given the industry's tailwinds, quality manufacturing stocks GE and WTS, which exhibit robust momentum, could be solid buys now.
Let's take a closer look at the fundamentals of these stocks:
General Electric Company (GE)
GE operates as a high-tech industrial company internationally. It provides gas and steam turbines, a full balance of plant, upgrade, service solutions, and data-leveraging software for power generation, industrial, government, and other customers. Also, it designs and produces commercial and military aircraft engines and electric power and mechanical aircraft systems.
On June 22, GE Aerospace signed a Memorandum of Understanding (MOU) with Hindustan Aeronautics Limited (HAL) to produce fighter jet engines for Indian Air Force. The deal includes the potential joint production of GE Aerospace's F414 engines in India. And GE Aerospace continues working with the U.S. government to receive the necessary export authorizations.
GE's longstanding partnership with India and HAL is expected to boost the company's growth and profitability.
On April 19, GE Aerospace signed an agreement with Lockheed Martin (LMT) to support avionics and electrical power systems on the F-35 globally. The four-year deal entails the maintenance, repair, and overhaul of GE Aerospace systems on the F-35 Lightning II aircraft. This reflects that the F-35's reliability and mission readiness remains a primary company focus.
On March 22, GE Gas Power, part of GE Vernova, and Svante announced a joint development agreement (JDA) to develop and evaluate solid sorbent-based carbon capture technology for natural gas power generation applications.
"We are excited to work with a technology innovator like Svante to drive collective progress on developing carbon capture solutions for the energy industry, aiming to deliver more sustainable, affordable, and reliable electricity for more people," said GE Vernova's CEO, Scott Strazik.
For the second quarter that ended June 30, 2023, GE's adjusted revenues increased 18.6% year-over-year to $15.85 billion, and its adjusted profit came in at $1.39 billion, up 37.1% year-over-year. The company's adjusted earnings before taxes grew 78.5% from the year-ago value to $1.09 billion.
Furthermore, the company's adjusted earnings were $748 million or $0.68 per share, representing 91.3% and 88.9% year-over-year increases, respectively.
Analysts expect GE's EPS for the third quarter (ending September 2023) to increase 58.7% year-over-year to $0.56. The company's revenue and EPS for the next fiscal year (ending December 2024) are expected to grow 8.4% and 87.5% from the prior year to $69.64 billion and $4.31, respectively. Also, GE surpassed the consensus revenue estimates in three of the trailing four quarters.
Over the past six months, GE's stock has gained 39.7% and 88.7% over the past year to close the last trading session at $113.57. The stock is trading above its 50-day and 200-day moving averages of $109.05 and $88.55, respectively, indicating an uptrend.
GE's solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to a 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 Momentum, Value, and Sentiment. It is ranked #11 out of 35 stocks in the A-rated Industrial - Manufacturing industry.
Beyond what we stated above, we also have GE's ratings for Growth, Stability, and Quality. Get all GE ratings here.
Watts Water Technologies, Inc. (WTS)
WTS manufactures and provides residential and commercial flow control and protection products; heating, ventilation, air conditioning, and gas products; and drainage and water reuse products. The company operates primarily in the Americas, Europe, the Asia-Pacific, the Middle East, and Africa.
On August 2, given WTS' solid first-half performance and third-quarter expectations, the company raised its full-year 2023 outlook. WTS' organic revenue growth is now expected to range from negative 2% to positive 2%, increasing the midpoint by 2%. In addition, the company expects its adjusted operating margin to range from 16.7% to 17.3%, raising the midpoint by 100 basis points.
"Our balance sheet and cash flow remain strong and provide ample flexibility to continue to invest in the business and support the execution of our long-term strategy," stated WTS' CEO Robert J. Pagano Jr.
On July 31, WTS declared a quarterly dividend of $0.36 per share on each outstanding share of the company's common stock to be paid on September 15, 2023. The company pays a $1.44 dividend annually, which translates to a yield of 0.77% at the current price. Its four-year average dividend yield is 0.80%.
Also, the company's dividend payouts have increased at CAGRs of 11.1% and 10.1% over the past three and five years, respectively.
During the second quarter that ended June 25, 2023, WTS' net sales increased 1.2% year-over-year to $532.80 million. Its gross profit grew 5.7% from the prior-year quarter to $252.80 million. Also, the company's operating income came in at $100.40 million, an increase of 4.7% year-over-year.
In addition, the company's net income was $75.90 million or $2.26 per share, compared to $69.70 million or $2.08 per share in the previous year's quarter, respectively.
The consensus revenue estimate of $513.70 million for the fourth quarter (ending December 2023) represents 2.4% growth year-over-year. The consensus EPS estimate of $1.68 for the same period indicates a 5.2% year-over-year rise. Moreover, WTS has an impressive earnings surprise history as it has topped the consensus EPS and revenue estimates in all four trailing quarters.
Shares of WTS have gained 6.9% over the past six months and 29.2% year-to-date to close the last trading session at $188.08. The stock is trading above its 50-day and 200-day moving averages of $180.41 and $164.62, respectively, indicating an uptrend.
WTS' POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
WTS has an A grade for Quality. It has a B grade for Momentum, Stability, and Sentiment. It is ranked #5 out of 35 stocks within the same industry.
To see additional POWR Ratings for Growth and Value for WTS, click here.
What To Do Next?
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GE shares were unchanged in premarket trading Friday. Year-to-date, GE has gained 74.80%, versus a 17.48% 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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