Despite tumultuous macroeconomic conditions, the industrial sector has thrived due to steady demand and constant transformations amid the growing demand for enhanced quality and high productivity.
Therefore, investors could look to diversify their portfolios with fundamentally strong industrial stocks Caterpillar Inc. (CAT), ITT Inc. (ITT), and Twin Disc, Incorporated (TWIN) with significant growth potential.
Rapid advances in technology are expected to drive innovation in industrial machinery manufacturing. Adopting the latest technologies like artificial intelligence, cloud computing, 3D printing, and others are helping increase efficiency and productivity, which will result in higher margins and help manufacturers gain a competitive edge.
The industrial machinery market is expected to grow to $708.3 billion in 2027 at a CAGR of 6.7%. Moreover, investors’ interest in the industrial sector is evident from the Vanguard Industrials ETF’s (VIS) 14.5% returns over the past year.
Given these factors, investors could look out for the featured industrial stocks. Let’s take a closer look at their fundamentals.
Caterpillar Inc. (CAT)
CAT manufactures and sells construction and mining equipment, diesel and natural gas engines, and industrial gas turbines. The company operates through five segments, Construction Industries; Resource Industries; Energy & Transportation; Financial Products; and All Other.
CAT’s EBIT grew at a CAGR of 15.2% over the past three years. Its EBITDA grew at a CAGR of 10.4% over the past three years. Moreover, its net income grew at a CAGR of 10.3% over the past three years.
In terms of the trailing-12-month EBIT margin, CAT’s 18.01% is 85.1% higher than the 9.73% industry average. Its 40.39% trailing-12-month Return on Common Equity is 189.7% higher than the 13.94% industry average. Likewise, its 11.53% trailing-12-month net income margin is 81.6% higher than the industry average of 6.35%.
CAT’s sales and revenues for the fiscal first quarter ended March 31, 2023, have increased 16.7% year-over-year to $15.86 billion. Additionally, its operating profit increased 47.2% year-over-year to $2.73 billion. Also, its adjusted EPS came in at $4.91, representing a 70.5% increase from the prior-year quarter.
CAT’s EPS and revenue for the quarter ended June 30, 2023, is expected to increase 43.9% and 16% year-over-year to $4.58 and $16.53 billion, respectively. It has an impressive earnings surprise history, surpassing the consensus EPS and revenue estimates in three of the trailing four quarters.
Over the past nine months, the stock has gained 43.7% to close the last trading session at $263.81.
CAT’s solid outlook is reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #9 out of 79 stocks in the A-rated Industrial - Machinery industry. Moreover, it has a B grade for Growth, Momentum and Sentiment.
To access the other ratings of CAT for Value, Stability, and Quality, click here.
ITT Inc. (ITT)
ITT manufactures and sells engineered critical components and customized technology solutions for the transportation, industrial, and energy markets worldwide. The company operates in three segments: Motion Technologies; Industrial Process; and Connect & Control Technologies.
ITT’s EBIT grew at a CAGR of 8.0% over the past three years. Its EBITDA grew at a CAGR of 5.8% over the past three years. Moreover, its net income grew at a CAGR of 5% over the past three years.
In terms of the trailing-12-month EBIT margin, ITT’s 15.81% is 62.4% higher than the 9.73% industry average. Its 12.82% trailing-12-month net income margin is 102% higher than the 6.35% industry average. Likewise, its 10.41% trailing-12-month return on total assets is 102.4% higher than the industry average of 5.14%.
For the fiscal first quarter that ended April 1, 2023, ITT’s revenue increased 9.9% year-over-year to $797.9 million and net income increased 33.7% year-over-year to $100 million. Its gross profit increased by 19.9% year-over-year to $261.9 million. Also, its EPS came in at $1.20, representing a 36.4% increase over the prior-year quarter.
ITT’s EPS and revenue for the quarter ended June 30, 2023, are expected to increase 19.8% and 8.4% year-over-year to $1.17 and $795.03 million, respectively. The company has a commendable earnings surprise history, surpassing the consensus earnings estimates in three of the trailing four quarters.
Over the past year, the stock has gained 48.3% to close the last trading session at $98.38.
ITT’s POWR Ratings reflect this promising outlook. It has an overall rating of A, which translates to a Strong Buy. The stock is ranked #6 in the Industrial - Machinery industry. It has a B grade for Growth, Momentum, Stability, Sentiment, and Quality. We have also given ITT grades for Value here.
Twin Disc, Incorporated (TWIN)
TWIN designs, manufactures, and sells marine and heavy-duty off-highway power transmission equipment in the United States, the Netherlands, China, Australia, Italy, and others. It operates through two segments: Manufacturing and Distribution.
TWIN’s EBITDA grew at a CAGR of 33.5% over the past three years. Its revenue grew at a CAGR of 1.2% over the past three years.
In terms of the trailing-12-month CAPEX/Sales, TWIN’s 3.40% is 19% higher than the 2.86% industry average. Likewise, its 0.96x trailing-12-month asset turnover ratio is 19.2% higher than the industry average of 0.80x.
TWIN’s net sales for the first quarter ended March 31, 2023, increased 24.4% year-over-year to $73.77 billion. Moreover, its gross profit increased 8.9% year-over-year to $19.27 billion. Its net income increased 19.9% year-over-year to $2.67 billion. Also, its EPS came in at $0.20, representing a 17.6% increase over the prior-year quarter.
Over the past three months, TWIN has gained 24.4% to close the last trading session at $11.32.
TWIN’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. It is ranked #8 in the Industrial - Machinery industry. It has a B grade for Growth, Sentiment, and Quality. Click here to see the other POWR Ratings of TWIN for Value, Momentum, and Stability.
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CAT shares were trading at $260.98 per share on Wednesday afternoon, down $2.83 (-1.07%). Year-to-date, CAT has gained 10.05%, versus a 19.88% 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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