The industrial sector is witnessing solid growth driven by the rising demand for goods and services, favorable government initiatives, a focus on boosting domestic production, sharpening supply chains, a growing focus on sustainability, and adopting cutting-edge technologies.
Considering the industrial sector’s long-term growth prospects, it could be wise to buy fundamentally strong industrial stocks Vale S.A. (VALE), EMCOR Group, Inc. (EME), and Vishay Precision Group, Inc. (VPG).
Before diving deeper into the fundamentals of these stocks, let’s discuss why the industrial sector looks well-positioned for growth.
Macroeconomic challenges have impacted the industrial sector, with industrial production declining 0.6% sequentially in October. Similarly, manufacturing output fell 0.7%, with much of this decline attributed to a 10% drop in motor vehicles and parts production due to the UAW strikes at major manufacturers of motor vehicles.
However, mining output rose 0.4% sequentially in October and 2.2% year-over-year. The operating rate for mining increased 0.5 percentage points to 94.3%, a rate 7.9 percentage points above its long-run average.
Although producers continue to struggle with the challenges of higher borrowing costs, tepid overseas economies, and uneven capital goods orders, the long-term prospects of the industrial sector look bright. Using cutting-edge technologies such as artificial intelligence, automation, robotics, remote monitoring, and the Internet of Things (IoT) will help boost the productivity and efficiency of manufacturers.
Additionally, favorable government initiatives such as the $1.2 trillion Bipartisan Infrastructure Bill, which was later signed into law called the Infrastructure Investment and Jobs Act, aims to provide $550 billion of new federal spending in America’s infrastructure, will boost the demand for metals, machinery, and other necessary industrial products.
Furthermore, the Inflation Reduction Act, signed into law last year, sought to boost domestic manufacturing. Such government initiatives are expected to set the stage for the industrial sector’s growth.
According to a report by The Business Research Company, the global industrial services market is expected to reach $40.75 billion in 2027, expanding at a CAGR of 5.2%. Additionally, the global metal and metal manufactured products market is expected to reach $18.50 trillion by 2030, growing at a CAGR of 5.2%.
Lets now dive into the fundamentals of the aforementioned stocks.
Vale S.A. (VALE)
Headquartered in Rio de Janeiro, Brazil, VALE, together with its subsidiaries, produces and sells iron ore and iron ore pellets for use as raw materials in steelmaking in Brazil and internationally. The company operates through the Iron Solutions and Energy Transition Materials segments.
On November 8, 2023, VALE partnered with Omani shipowner Asyad to install rotor sails on Valemax, the world's largest ore carrier, enhancing energy efficiency and reducing emissions.
This initiative, part of VALE's Ecoshipping program, demonstrates a commitment to decarbonizing maritime transportation, aligning with the company's goal of reducing carbon emissions and providing valuable insights for the next generation of ships.
On 27 July, VALE entered into a $3.4 billion agreement with Manara Minerals and Engine No. 1, accelerating VALE Base Metals' capital program to significantly increase copper and nickel production.
This strategic partnership aims to drive VALE's Energy Transition Metals business, meet the growing demand for green metals, create long-term value, and reinforce its position as a critical mineral supplier for global decarbonization and electrification.
VALE CEO Eduardo Bartolomeo said, “We see these strategic investments as a major milestone in our path to accelerate accretive growth in our Energy Transition Metals business platform, creating significant long-term value to all our stakeholders.”
In terms of the trailing-12-month net income margin, VALE’s 23.01% is 286.1% higher than the 5.96% industry average. Likewise, its 34.91% trailing-12-month EBIT margin is 206.9% higher than the industry average of 11.38%. Furthermore, the stock’s 27.55% trailing-12-month Return on Common Equity is 261.8% higher than the industry average of 7.61%.
VALE’s net operating revenues for the third quarter that ended September 30, 2023, rose 7% year-over-year to $10.62 billion. The company’s adjusted EBIT from continuing operations increased 17.5% year-over-year to $3.40 billion. Its adjusted EBITDA from continuing operations rose 13.9% year-over-year to $4.18 billion. The company’s gross profit also came in at $4.31 billion, up 18.9% over the prior-year quarter.
In addition, its net income from continuing operations attributable to VALE came in at $2.84 billion. Also, its EPS came in at $0.66.
Street expects VALE’s revenue and EPS for the quarter ending December 31, 2023, to increase 3.4% and 7% year-over-year to $12.35 billion and $0.76, respectively. Over the past six months, the stock has gained 13.8% to close the last trading session at $14.94.
VALE’s POWR Ratings reflect its solid prospects. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Quality and a B for Value. It is ranked #3 out of the 33 stocks in the Industrial - Metals industry. Click here to access the additional ratings of VALE’s for Growth, Momentum, Stability and Sentiment.
EMCOR Group, Inc. (EME)
EME specializes in electrical and mechanical construction and facilities services, primarily in the U.S. and the U.K. It offers design, integration, start-up, operation, and maintenance services related to electrical power transmission, distribution, and generation systems; energy solutions; premises electrical and lighting systems; process instrumentation and other services.
On July 5, EME announced the acquisition of ECM Holding Group, Inc., a leading national energy efficiency services firm. This move strengthens EMCOR's position in energy efficiency services and expands its solutions portfolio, enhancing customer value and sustainability efforts.
In terms of the trailing-12-month Return on Common Equity of 26.59% is 117.4% higher than the industry average of 12.23%. The company’s 18.17% trailing-12-month Return on Total Capital is 163.6% higher than the industry average of 6.90%. Meanwhile, its 2.07x trailing-12-month asset turnover ratio is 159.8% higher than the 0.80x industry average.
For the fiscal third quarter that ended September 30, 2023, EME’s revenues increased 13.5% year-over-year to $3.21 billion. Its gross profit increased 32% from the year-ago value to $545.47 million. The company’s non-GAAP operating income increased 58.1% year-over-year to $237.33 million.
Moreover, the company’s non-GAAP net income and earnings per share increased 61.8% and 67.1% year-over-year to $171.11 million and $3.61, respectively.
Analysts expect EME’s revenue and EPS for the quarter ending December 31, 2023, to increase 13.7% and 35.4% year-over-year to $3.36 billion and $3.56, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters, which is impressive. EME’s shares have gained 42.7% year-to-date to close its last trading session at $211.41.
EME’s POWR Ratings reflect this promising outlook. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It has an A grade for Sentiment and a B for Growth, Momentum, and Quality. It is ranked #3 out of 80 stocks within the B-rated Industrial – Services industry. To see the additional POWR Ratings of EME for Value and Stability, click here.
Vishay Precision Group, Inc. (VPG)
VPG designs, manufactures, and markets specialized sensors, weighing solutions, and measurement systems. It operates through three segments: Sensors, Weighing Solutions, and Measurement Systems. Its product portfolio includes precision resistors, strain gages, load cells, on-board weighing systems, and process weighing products.
VPG’s trailing-12-month EBIT Margin of 12.43% is 164.9% higher than the industry average of 4.69%. Its trailing-12-month net income margin of 8.38% is 373.9% higher than the industry average of 1.77%. It’s 9.93% trailing-12-month Return on Common Equity is 904.4% higher than the 0.99% industry average.
VPG’s net revenue for the third quarter ended September 30, 2023, amounted to $85.85 million, while its adjusted gross profit came in at $36.15 million. The company’s adjusted operating income stood at $9.59 million. In addition, its non-GAAP net earnings attributable to VPG stockholders came in at $6.44 million. Also, its non-GAAP EPS came in at $0.47.
For fiscal 2024, analysts expect VPG’s revenue and EPS to increase 4% and 16% year-over-year to $360.68 million and $2.23, respectively. Over the past month, the stock has gained 1.6% to close the last trading session at $30.76.
VPG’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system.
It is ranked #5 out of the 35 stocks in the A-rated Industrial - Manufacturing industry. It has an A grade for Value and a B for Stability and Quality. Click here to see VPG’s ratings for Growth, Momentum and Sentiment.
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VALE shares were trading at $14.99 per share on Thursday morning, up $0.05 (+0.33%). Year-to-date, VALE has declined -5.57%, versus a 20.21% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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