Industrial manufacturing made a strong comeback after the pandemic, demonstrating continued strength last year. The headwinds of high inflation, supply chain disruptions, and interest rate hikes have put industrial manufacturing under pressure. The U.S. industrial production was flat in February while manufacturing output rose 0.1% year-over-year.
Industrial production is expected to get a boost from favorable government policies. To that end, it could be wise for investors to consider buying industrial stocks Allison Transmission Holdings, Inc. (ALSN) and Apogee Enterprises, Inc. (APOG). These stocks have a Strong Buy rating in our POWR Ratings system.
The Biden administration is providing subsidies and other incentives to boost domestic production. The government is trying to help American manufacturers compete globally.
As we step into Industry 4.0, the adoption of the Internet of Things (IoT), AI-based tools, and favorable government policies are expected to drive the growth of the industrial manufacturing sector.
With the increasing need to eliminate human error and reduce costs during the stages of industrial processes, the industrial automation market is expected to reach $217.20 billion by 2029, growing at a CAGR of 8.5%.
The industrial machinery market is expected to grow at a CAGR of 6.7% to $708.30 billion by 2027. Investors’ interest in the industrial sector is evident from the SPDR Select Sector Fund Industrial (XLI) 14.4% returns over the past six months.
Amid this backdrop, investors could look to invest in Strong Buy stocks ALSN and APOG.
Allison Transmission Holdings, Inc. (ALSN)
ALSN designs, manufactures, and sells commercial and defense fully automatic transmissions for medium-and heavy-duty commercial vehicles, and medium-and heavy-tactical U.S. defense vehicles worldwide. The company offers transmissions for various applications.
On January 11, 2023, ALSN partnered with Nikola Corporation, to conduct testing of its Class 8 battery-electric vehicle (BEV) and hydrogen fuel cell electric vehicle (FCEV).
ALSN’s General Manager, Vehicle Electrification + Environmental Test Center, David Proctor, said, "Our facility has the capabilities to support external customer test and validation programs for vehicles powered by every major propulsion type, which reinforces Allison’s commitment to taking a leadership role in the development of alternative fuel options for the commercial vehicle industry."
On January 18, 2023, ALSN announced that it was selected by Larsen and Toubro (L&T) Ltd. to provide the Allison 3040 MX propulsion solution for the Indian Army’s Futuristic Infantry Combat Vehicle (FICV) prototype.
ALSN will manage the engineering design, development, fabrication, testing, and demonstration of the 3040 MX for the FICV prototype vehicles through 2024. The Indian Army intends to procure approximately 1,750 FICVs over the next two decades.
In terms of forward non-GAAP P/E, ALSN’s 6.50x is 60.2% lower than the 16.34x industry average. Its 7.59x forward EV/EBIT is 47.2% lower than the 14.37x industry average. Likewise, its 6.24x forward EV/EBITDA is 39.5% lower than the 10.31x industry average.
For the fiscal fourth quarter that ended December 31, 2022, ASLN’s net sales increased 11.5% year-over-year to $718 million. Its net income increased 19.5% year-over-year to $141 million.
The company’s adjusted EBITDA increased 11.4% from the prior-year quarter to $245 million. Its EPS attributable to common stockholders came in at $1.52, representing a 32.2% increase from the year-ago period.
Analysts expect ALSN’s EPS and revenue for the quarter ended March 31, 2023, to increase 16.4% and 5.7% year-over-year to $1.51 and $715.55 million, respectively. It has an impressive earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters.
Over the past six months, the stock has gained 28.7% to close the last trading session at $43.04.
ALSN’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the A-rated Auto Parts industry, it is ranked #12 out of 60 stocks. It has an A grade for Quality. We have also given ALSN grades for Growth, Value, Momentum, Stability, and Sentiment. Get all ALSN ratings here.
Apogee Enterprises, Inc. (APOG)
APOG designs and develops glass and metal products and services in the United States, Canada, and Brazil. The company operates in four segments: Architectural Framing Systems, Architectural Glass, Architectural Services, and Large-Scale Optical Technologies (LSO).
In terms of forward non-GAAP P/E, APOG’s 10.37x is 36.5% lower than the 16.34x industry average. Its 0.64x forward Price/Sales is 50.2% lower than the 1.28x industry average. Likewise, its 0.79x forward EV/Sales is 50.9% lower than the 1.62x industry average.
For the fiscal third quarter that ended November 26, 2022, APOG’s net sales rose 10% from the prior-year quarter to $367.85 million. Its adjusted net earnings increased 49.7% year-over-year to $23.77 million.
The company’s adjusted EBITDA increased 32.9% from the prior-year quarter to $44.69 million. In addition, its adjusted EPS came in at $1.07, representing a 69.8% increase from the year-ago quarter.
Street expects APOG’s EPS for fiscal 2023 to increase 60.5% year-over-year to $3.98. Its revenue for the quarter that ended February 28, 2023, is expected to increase 5.7% year-over-year to $346.58 million. It surpassed the Street EPS estimates in each of the trailing four quarters.
Over the past six months, the stock has gained 6.4% to close the last trading session at $41.29.
APOG’s POWR ratings reflect this promising outlook. APOG has an overall rating of A, which translates to a Strong Buy. It is ranked first out of 47 stocks in the B-rated Industrial - Building Materials industry. It has an A grade for Growth and a B for Value, Momentum, and Quality. Click here to access the additional ratings of APOG for Stability and Sentiment.
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ALSN shares were trading at $43.11 per share on Monday morning, up $0.07 (+0.16%). Year-to-date, ALSN has gained 4.12%, versus a 4.14% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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