Post-pandemic, as industries are rapidly embracing new methods of conducting business and trying to increase efficiency, there has been a substantial uptick in demand for advanced equipment and solutions.
Strong demand for industrial goods and favorable government policies to support domestic production should drive the performance of industrial goods manufacturers. The Biden Government’s $1 trillion infrastructure bill, signed last year, is expected to boost the industry further.
Moreover, amid rising investments in construction and infrastructure projects, the global construction equipment market size is projected to grow at a CAGR of 4.6% from 2022 to 2030.
Hence, fundamentally strong industrial stocks Keysight Technologies, Inc. (KEYS) and LSI Industries Inc. (LYTS) might be solid buys now.
However, the Institute for Supply Management said its index of U.S. manufacturing activity stood at 50.2 in October, down from 50.9 the prior month and the lowest figure since May 2020 as high inflation, tighter monetary policy, and a slowing global economy hit the sector.
Amid this, fundamentally weak industrial stock Plug Power Inc. (PLUG) might be best avoided.
Stocks to Buy:
Keysight Technologies, Inc. (KEYS)
KEYS is a technology company that provides electronic design and test solutions. It operates through two segments: Communications Solutions Group (CSG); and Electronics Industrial Solutions Group (EISG).
On November 14, KEYS announced that Altium LLC recently licensed KEYS’ advanced electromagnetic simulation technology to develop power analysis solutions for PCB designers. Both companies are partnering to address the needs of hardware engineers who are not power integrity experts. This should help KEYS grow.
On November 9, KEYS announced that NOKIA Bell Labs had selected KEYS’ sub-Terahertz test bed to verify the performance of 5G advanced and 6G transceiver modules. Both the companies’ expertise in advanced semiconductor methods and technologies under research will support 6G.
Shahriar Shahramian, RFIC & Packaging Lab Leader at NOKIA Bell Labs, said: “NOKIA Bell Labs relies on Keysight’s design, validation, and optimization solutions, as well as measurement science expertise, to reach the levels of performance necessary to fulfill the promise of many 6G use cases.”
For its fiscal third quarter ended July 31, 2022, KEYS’ revenue increased 10.4% year-over-year to $1.38 billion. Its income from operations grew 25.7% from its year-ago value to $357 million. Its non-GAAP net income stood at $363 million, reflecting a 26.9% increase year-over-year. Furthermore, its non-GAAP net EPS was $2.01, up 30.5% from the prior-year quarter.
KEYS’ revenue is expected to come in at $1.33 billion, indicating a 6.6% year-over-year growth in its first quarter ending January 2023. The company’s EPS is expected to increase 9.5% year-over-year to $1.81 for the same quarter. KEYS also beat the consensus EPS estimates in each of the trailing four quarters.
The stock has gained 23.2% over the past six months to close yesterday’s trading session at $166.57. It has gained 8% over the past month.
KEYS’ POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock has an A grade in Quality and a B in Stability and Sentiment. Among the 89 stocks in the B-rated Industrial - Equipment industry, KEYS is ranked #16.
In addition to the POWR Rating grades just highlighted, one can see the KEYS’ ratings for Growth, Value, and Momentum here.
LSI Industries Inc. (LYTS)
LYTS produces and sells non-residential lighting and retail display solutions in the United States, Canada, Mexico, Australia, and Latin America. It operates in two segments, Lighting and Display Solutions.
On November 2, LYTS declared a regular cash dividend of $0.05 per share, payable on November 22, 2022.
LYTS’ net sales increased 19% year-over-year to $127.07 million for the first quarter ended September 30, 2022. Its adjusted operating income increased 117.7% from the prior-year quarter to $10.89 million. The company’s non-GAAP net income increased 99.9% year-over-year to $7.08 million, while its non-GAAP EPS came in at $0.25, representing a 92.3% increase from the prior-year quarter.
The consensus EPS estimate of $0.78 for the current fiscal year ending June 2023 represents a 44.4% improvement year-over-year. The consensus revenue estimate of $489.05 million for the current year represents a 7.5% increase from last year. The company has an impressive earnings surprise history, as it surpassed the consensus EPS estimates in each of the trailing four quarters.
The stock has gained 52.2% year-to-date to close the last trading session at $10.44. It has gained 32.3% over the past month.
It is no surprise that LYTS has an overall A rating, which equates to Strong Buy in our POWR Ratings system.
It has an A grade for Sentiment and a B for Value, Growth, and Quality. LYTS is ranked first in the same industry.
Click here to see the additional POWR Ratings for OC (Stability and Momentum).
Stock to Avoid:
Plug Power Inc. (PLUG)
PLUG is a leading provider of comprehensive hydrogen fuel cell (HFC) turnkey solutions. The company offers end-to-end clean hydrogen and zero-emissions fuel cell solutions for supply chain and logistics applications, on-road electric vehicles, the stationary power market, and more.
On October 19, PLUG and Olin Corporation (OLN) announced the launch of a joint venture to begin the construction of a 15-ton-per-day hydrogen plant in St. Gabriel, Louisiana. However, the gains from the joint venture might not be realized anytime soon.
During the third quarter that ended September 30, 2022, PLUG’s total operating expenses increased 68.2% year-over-year to $113.68 million. The company’s operating loss rose 261.9% from the year-ago value to $159.75 million. Its gross loss increased 48.2% year-over-year to $46.06 million.
Street estimates PLUG’s EPS to decline 26.2% year-over-year to negative $1.03 for the fiscal year ending December 2022. Moreover, the company has failed to surpass the consensus EPS estimates in each of the trailing four quarters.
Over the past year, PLUG has plunged 61.2% to close the last trading session at $16.71. The stock has declined 40.8% year-to-date.
PLUG’s POWR Ratings are consistent with this bleak outlook. The stock has an overall rating of F, which translates to a Strong Sell in our proprietary rating system.
It also has an F grade for Stability, Sentiment, and Quality and a D for Value. It is ranked #84 in the Industrial - Equipment industry.
To see PLUG’s POWR Ratings for Growth and Momentum, click here.
KEYS shares were unchanged in premarket trading Thursday. Year-to-date, KEYS has declined -19.34%, versus a -15.78% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
2 Industrial Stocks to Buy This November and 1 to Sell StockNews.com
