Despite facing challenges such as geopolitical turmoil-induced supply chain disruption, economic uncertainties, labor shortage, and sky-high inflation, the manufacturing and industrial sector will likely remain buoyed in the foreseeable future due to technological advancements and increased demands for industrial goods.
Moreover, owing to the Infrastructure Investment and Jobs Act that was passed in 2021 and the Inflation Reduction Act of 2022, this year is expected to have a fresh bout of government contracts up for bid.
For instance, for the Bipartisan Infrastructure Law, implemented about a year ago, the Biden administration has announced over $185 billion in funding and over 6,900 specific projects across all 50 states, uplifting the industrial sector.
The recently announced standards require all construction materials used in federal infrastructure projects to be made in America, including lumber, glass, drywall, and fiber-optic cables. This is expected to boost the sector further.
Furthermore, over the past year, the Industrial Select Sector SPDR Fund (XLI) has gained 3.8%, outpacing the S&P 500, which plunged 6%. This substantiates investors’ interest in industrial stocks.
Given the sector’s bright growth prospects, fundamentally strong industrial stocks Keysight Technologies, Inc. (KEYS) and nVent Electric plc (NVT) could be ideal buys for the rest of 2023. However, FuelCell Energy, Inc. (FCEL) might be best avoided.
Stocks to Buy:
Keysight Technologies, Inc. (KEYS)
KEYS provides electronic design and test solutions to companies in the Americas, Europe, and the Asia Pacific. The company also offers customization, consulting, and optimization services throughout the product development lifecycle. It operates through two segments: Communications Solutions Group (CSG); and Electronics Industrial Solutions Group (EISG).
On February 8, 2023, KEYS announced that MISIC Microelectronics had selected its S930705B Modulation Distortion solution to enable the fast and accurate active-device modulation distortion characterization of the company’s microwave devices and components. This could prove beneficial for KEYS in the near future.
On February 6, KEYS announced that it brought advanced solution expertise to four projects that are a part of the 6G Smart Networks and Services Joint Undertaking (SNS-JU), a research and innovation program co-funded by the European Union. The public-private partnership should help facilitate and develop industrial leadership in 5G and 6G networks and services in Europe.
On December 1, 2022, KEYS unveiled the new MP4300A Series Modular Solar Array Simulator (SAS) to emulate the behavior of photovoltaic (PV) segments. The SAS solution emulates the behavior of satellite photovoltaic arrays with high fidelity across all conditions encountered in space.
KEYS’ trailing-12-month EBIT margin of 25.46% is 348.2% higher than the industry average of 5.68%. Also, its trailing-12-month net income margin of 20.74% is 596.9% higher than the industry average of 2.98%.
KEYS’ revenues increased 11.5% year-over-year to $1.44 billion in the fourth quarter that ended October 31, 2022. The company’s non-GAAP net income increased 14.2% from the year-ago value to $386 million, while its income from operations grew 8.6% year-over-year to $379 million. KEYS’ non-GAAP EPS rose 17.6% from the prior-year quarter to $2.14.
Analysts expect KEYS’ revenues to increase 4.1% year-over-year to $1.41 billion in the fiscal second quarter (ending April 2023). Its EPS is expected to increase 5.8% year-over-year to $1.94 in the current quarter. The company has an excellent earnings and revenue surprise history as it surpassed the consensus EPS and revenue estimates in each of the trailing four quarters.
KEYS’ shares have gained 11.6% over the past year to close the last trading session at $185.24. Over the past six months, the stock has gained 9.2%.
KEYS’ POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has an A grade for Quality and a B grade for Sentiment. Among the 90 stocks in the B-rated Industrial – Equipment industry, it is ranked #19.
Click here to see the additional POWR Ratings of KEYS for Growth, Value, Momentum, and Stability.
nVent Electric plc (NVT)
Based in London, the United Kingdom, NVT designs, manufactures, markets, installs, and services electrical connection and protection products worldwide. The company operates through Enclosures; Electrical & Fastening Solutions; and Thermal Management segments.
On December 13, 2022, announced a regular quarterly cash dividend of $0.175 per ordinary share, paid to shareholders on February 3, 2023. This reflects its cash generation ability.
On November 10, NVT previewed its new user-friendly portfolio of nVent HOFFMAN Cable Entry Systems at Rockwell Automation Fair. Jasneet Kaur, the VP of products for NVT, said, “This new portfolio addition is extremely important to our customers as these products seal and terminate devices, ensuring protection of electrical equipment, and help to maintain the overall integrity and resilience of our enclosures."
NVT’s forward non-GAAP P/E of 17.50x is 1.8% lower than the industry average of 17.81x. Its forward EV/EBITDA multiple of 14.58 is 6.5% lower than the industry average of 15.60.
For its fiscal fourth quarter that ended December 31, 2022, NVT’s net sales increased 10.9% year-over-year to $741.60 million. The company’s gross profit came in at $291.60 million, representing an 18% year-over-year improvement.
The company’s operating income came in at $125.10 million, up 40.6% from the prior-year period. NVT’s adjusted net income came in at $111.60 million, indicating a 31.9% rise from the prior-year period. Its adjusted earnings per ordinary shares increased 32% year-over-year to $0.66.
Analysts expect NVT’s EPS to improve 15% year-over-year to $0.58 for its fiscal first quarter ending March 2023. Street expects its revenue to increase 4.7% year-over-year to $727.04 million. It surpassed the consensus revenue estimates in each of the trailing four quarters.
Over the past year, the stock has gained 35.81% to close its last trading session at $45.59. It has gained 14.7% over the past month.
NVT’s POWR Ratings reflect its solid prospects. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.
NVT has an A grade for Sentiment and a B for Quality and Stability. NVT is ranked #3 within the same industry.
In addition to the POWR Rating grades we’ve just highlighted, one can see the ratings for NVT’s Momentum, Growth, and Value here.
Stock to Avoid:
FuelCell Energy, Inc. (FCEL)
FCEL manufactures fuel cell technology platforms and offers sustainable goods and solutions. Its customers include utility companies, municipalities, universities, hospitals, government entities/military bases, and a wide range of industrial and commercial firms.
In terms of forward EV/Sales, FCEL is trading at 8.67x, 378.1% higher than the industry average of 1.81x. Likewise, its forward Price/Sales multiple of 10.87 is 667.1% higher than the industry average of 1.42.
For the fiscal fourth quarter that ended October 31, 2022, FCEL’s gross loss expanded 81.6% from the prior year to $15.19 million. The company reported a loss from operations of $42.67 million, which increased 89.2% year-over-year. Its adjusted EBITDA loss expanded by 113.8% year-over-year to $36.10 million for the same quarter.
Furthermore, the company’s net loss and net loss per share widened 73.2% and 57.1% year-over-year to $43.27 million and $0.11, respectively.
Analysts expect FCEL’s loss per share to be $0.07 for the fiscal second quarter (ending April 2023). Street expects its revenue to come in at $28.27 million. Moreover, FCEL missed the consensus EPS estimates in all the trailing four quarters.
The stock has plunged 31.7% over the past six months to close the last trading session at $3.49. Over the past five days, it has lost 5.9%.
FCEL’s POWR Ratings are consistent with this bleak outlook. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system.
The stock has an F grade for Stability, Sentiment, and Quality and a D for Value. Within the same industry, it ranked #84 of 90 stocks.
Click here to see the additional ratings of FCEL for Growth and Momentum.
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KEYS shares were trading at $186.39 per share on Wednesday morning, up $1.15 (+0.62%). Year-to-date, KEYS has gained 8.96%, versus a 7.38% 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.
2 Industrial Stocks to Buy for the Rest of 2023 and 1 to Sell StockNews.com
