Stimulated by the rising demand for industrial machinery, metals, and services from a broad spectrum of end-use industries, coupled with the adaption of advanced technologies and augmented governmental policies and investments, the industrial sector is demonstrating impressive growth potential.
Therefore, it could be wise to invest in fundamentally robust industrial stocks Rio Tinto Group (RIO), Limbach Holdings, Inc. (LMB), and Core Molding Technologies, Inc. (CMT) now.
The industrial sector, known for its dynamic shift from fostering manufacturing to championing sustainable solutions, carries global significance. This sector remains notably resilient despite geopolitical instability and a high-interest rate environment. Swiftly increasing global economic activities are instrumental in fueling its rise.
The intrinsic position the industrial sector holds within the economy cannot be overstated – profoundly evident through the spiraling demand for industrial services across multiple end-use industries like automotive, oil and gas, semiconductors and electronics, healthcare, metals and mining, aerospace, chemicals, and the power sector. The global industrial services market is expected to reach $51.98 billion in 2032, expanding at a CAGR of 5.7%.
Further strengthening the sector's growth prospects is the escalated demand for automation and the modernization of manufacturing processes, all driving momentum in the global industrial machinery market. The ongoing technological innovations across the industry are expected to expand the market. The global industrial machinery market is projected to reach $1.04 trillion by 2032, growing at a 5.3% CAGR.
In addition, supportive government policies like the Inflation Reduction Act, Bipartisan Infrastructure Law, and CHIPS and Science Act are poised to fuel domestic manufacturing, amplifying the demand for metals, machinery, and other crucial industrial products.
Given the industry tailwinds, it's time to examine the fundamentals of the three stocks to buy in the industrial sector.
Rio Tinto Group (RIO)
RIO, headquartered in London, the United Kingdom, engages in global exploration, mining, and processing of mineral resources. The company operates through Iron Ore; Aluminium; Copper; and Minerals segments.
On November 21, RIO partnered with Aymium to develop and try a renewable biocarbon-based substitute intended for large-scale industrial processes to reduce emissions. The newly formulated product proved successful when it was experimented with as an alternative for anthracite during ilmenite smelting procedures.
The proceeds from this strategic partnership will be channeled to facilitate the expansion of Aymium's production capabilities in North America. Furthermore, these funds will substantially boost their R&D endeavors.
In November, RIO acquired PanAmerican Silver’s stake in Agua de la Falda and entered a joint venture with Corporación Nacional del Cobre de Chile (Codelco) to explore and potentially develop the company’s assets in Chile’s prospective Atacama region.
The acquisition comprised a 57.74% operating stake in Agua de la Falda for $45 million and the net smelter return royalties grant, paving the way for RIO and Codelco to start its joint exploration project at the asset. This should bode well for RIO.
RIO’s annualized dividend rate of $3.54 per share translates to a dividend yield of 5.12% on the current share price. Its four-year average yield is 9.95%. RIO’s dividend payments have grown at CAGRs of 1.4% and 5.5% over the past three and five years, respectively.
RIO’s trailing-12-month cash from operations of $12.63 billion is significantly higher than the industry average of $415.73 million. Its trailing-12-month EBIT and net income margins of 27.28% and 16.39% are 139.8% and 174.9% higher than the industry averages of 11.38% and 5.96%, respectively.
In the six months that ended June 30, 2023, RIO’s consolidated sales revenue and operating profit stood at $26.67 billion and $7.25 billion, respectively. Moreover, its free cash flow stood at $3.77 billion. For the same period, underlying earnings and basic underlying earnings per ordinary share stood at $5.72 billion and 352.90 cents, respectively.
Street expects RIO’s revenue and EPS in the fiscal year ending December 2023 to be $52.35 billion and $7.52, respectively.
The stock has gained 17% over the past six months to close the last trading session at $69.09. Over the past three months, it has gained 10.5%.
RIO’s POWR Ratings reflect its positive prospects. The stock has an overall B rating, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has a B grade for Value, Stability, and Quality. Within the Industrial - Metals industry, it is ranked #7 out of 33 stocks.
To see additional POWR Ratings for Growth, Momentum, and Sentiment for RIO, click here.
Limbach Holdings, Inc. (LMB)
LMB is a provider of integrated building systems solutions. The company operates in two broad segments: General Contractor Relationships and Owner Direct Relationships. It designs, installs, and maintains mechanical, electrical, plumbing, and control systems; and heating, ventilation, and air-conditioning (HVAC) systems.
On November 2, LMB acquired Industrial Air, LLC (IA), a specialty mechanical contractor based in Greensboro, North Carolina, for an initial enterprise value of $13.50 million in an all-cash transaction.
IA’s business model aligns with LMB’s focus on executing ODR opportunities and providing critical solutions to sophisticated manufacturing and process facility owners. On average, IA is expected to contribute about $30 million in revenue and $4 million in EBITDA annually. LMB’s presence in a diversified and fast-growing geographic market will help the company expand within the industrial and institutional sectors.
LMB’s trailing-12-month asset turnover ratio of 1.83x is 128.9% higher than the industry average of 0.80x. Its trailing-12-month ROCE, ROTC, and ROTA of 18.66%, 12.49%, and 6.77% are 52.6%, 81.1%, and 37.9% higher than the industry averages of 12.23%, 6.90%, and 4.91%, respectively.
In the fiscal third quarter that ended September 30, 2023, LMB’s revenue and gross profit increased 4.4% and 25.7% year-over-year to $127.77 million and $31.24 million, respectively.
For the same quarter, net income and earnings per common share stood at $7.19 million and $0.61, up 97.5% and 79.4% from the year-ago quarter, respectively. Moreover, its adjusted EBITDA increased 33.6% from the prior-year quarter to $13.63 million.
As per LMB’s updated guidance for fiscal year 2023, LMB’s revenue is expected to be between $490 million and $520 million, while adjusted EBITDA is expected to be between $42 million and $45 million.
Street expects LMB’s revenue and EPS for the fiscal year ending December 2023 to increase 1.3% and 173.4% year-over-year to $503.06 million and $1.75, respectively. The company surpassed consensus EPS estimates in each of the trailing four quarters and revenue estimates in three of the trailing four quarters, which is impressive.
The stock has gained 266.2% year-to-date to close the last trading session at $38.12. Over the past six months, it has gained 87.1%.
LMB’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system.
LMB has an A grade for Sentiment and Quality and a B for Growth and Momentum. Within the B-rated Industrial - Services industry, it is ranked #5 out of 80 stocks.
Beyond what we’ve stated above, we have also rated the stock for Value and Stability. Get all ratings of LMB here.
Core Molding Technologies, Inc. (CMT)
CMT is a provider of engineered materials. It specializes in molded structural components, primarily for North America and Mexico’s building products, utilities, transportation, and power sports industries.
CMT’s trailing-12-month asset turnover ratio of 1.77x is 150.9% higher than the industry average of 0.70x. Its trailing-12-month levered FCF and net income margins of 5.83% and 6.20% are 41% and 4.1% higher than the industry averages of 4.13% and 5.96%, respectively.
In the fiscal third quarter that ended September 30, 2023, CMT’s total net sales stood at $86.73 million, while gross margin increased 14.8% year-over-year to $15.28 million. Moreover, its adjusted EBITDA increased 16.5% from the prior-year quarter to $9.82 million.
For the same quarter, adjusted net income and adjusted net income per share stood at $4.73 million and $0.53, up 63.1% and 51.4% from the year-ago quarter, respectively.
Street expects CMT’s EPS for the fiscal year ending December 2023 to increase 52.8% year-over-year to $2.20, while its revenue is expected to be $355.90 million. The company surpassed consensus revenue and EPS estimates in three of the trailing four quarters.
The stock has gained 7% over the past nine months to close the last trading session at $17.99. Over the past year, it has gained 66.4%.
CMT’s robust prospects are reflected in its POWR Ratings. The stock has an overall B rating, equating to Buy in our proprietary rating system.
CMT has an A grade for Value and a B for Quality. It is ranked #8 out of 35 stocks within the A-rated Industrial - Manufacturing industry.
Click here for the additional POWR Ratings for CMT (Growth, Momentum, Stability, and Sentiment).
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
RIO shares were unchanged in premarket trading Friday. Year-to-date, RIO has gained 3.03%, versus a 20.67% 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.
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