The industrial sector, vital to the economy, is poised for continual expansion due to technological advancements and enhanced government backing. Given this backdrop, fundamentally strong industrial stocks Holcim AG (HCMLY), Amada Co., Ltd. (AMDLY), Quanex Building Products Corporation (NX), and Interface, Inc. (TILE) could be solid buys now. Moreover, these stocks have been exhibiting strong momentum lately and are expected to maintain it in the near term.
The industrial sector, crucial for economic vitality, often reflects overall economic health. Positioned for significant growth, it is poised to benefit from global economic resurgence and rapid industrialization.
U.S. construction spending in December 2023 surpassed expectations amid a single-family homebuilding surge. The total U.S. construction spending in January 2024 is estimated at $2.10 trillion, which is 1.5% above the January 2023 estimate of $1.88 trillion. The U.S. construction market is expected to grow at an AAGR of over 4% through 2028.
Moreover, the manufacturing sector remains resilient and poised for significant growth in the future. Industrial production, which includes aircraft, automobiles, chemicals, electronics, machinery, oil, and steel, surpasses pre-pandemic levels. The industrial machinery industry is primed for substantial profitability as the manufacturing sector expands. Forecasts predict the industrial machinery market could exceed $1 trillion by 2032, growing at a 6% CAGR.
Federal funding and other incentives are ready to benefit the industry’s infrastructure, onshoring/reshoring, and the electrification of everything, through Inflation Reduction Act and Infrastructure Investment and Jobs Act. This massive funding could bolster the industrial sector significantly, along with focusing on its long-term growth prospects.
Furthermore, advancements in AI, machine learning, and data analytics boost industrial productivity and efficiency. Integrating AI-driven decisions in areas like inventory management, production line assessment, supply chain coordination, and quality control is gaining traction.
In light of these encouraging trends, let's look at the fundamentals of the four industrial sector stocks.
Holcim AG (HCMLY)
Headquartered in Zug, Switzerland, HCMLY operates as a building materials and solutions company worldwide. The company's business segments include Cement; Aggregates; Ready-Mix Concrete; and Solutions & Products.
On March 18, HCMLY launched its previously announced share buyback program for CHF1 billion ($1.11 billion) until year-end 2024, with the share cancellation to be approved at the Annual General Meeting in 2025. The share buyback will be funded from available cash on the balance sheet. HCMLY remains committed to a strong investment grade credit rating.
On February 7, HCMLY acquired ZinCo, a leader in advanced green roofing systems based in Germany, with global operations across Europe, Asia, and America. With its integrated green and solar roofing systems, Zinco is expanding HCMLY’s specification selling approach.
With this acquisition, HCMLY advanced its goal of expanding its Solutions & Products business to 30% of group net sales by 2025, entering the most attractive construction segments, from roofing systems to insulation and renovation.
Its annualized dividend is $0.51 per share, which translates to a dividend yield of 2.82% on the current share price. Its four-year average yield is 3.95%. Over the past three and five years, HCMLY’s dividend payments have grown at CAGRs of 11.7% and 4.9%, respectively.
HCMLY’s trailing-12-month cash from operations of $6.50 billion is significantly higher than the industry average of $433.96 million. Its trailing-12-month net income and levered FCF margins of 11.33% and 12.30% are 126% and 137.9% higher than the industry averages of 5.01% and 5.17%, respectively.
For the fiscal fourth quarter that ended December 31, 2023, HCMLY’s net sales and recurring EBIT stood at CHF6.60 billion ($7.32 billion) and CHF1.12 billion ($1.24 billion), up 2.1% and 8.7% year-over-year, respectively.
For the fiscal year that ended December 31, 2023, its net income stood at CHF3.18 billion ($3.52 billion), while EPS before impairment and divestments increased 48.1% from year-ago value to CHF5.42.
Street expects HCMLY’s revenue for the fiscal year ending December 2024 to increase marginally year-over-year to $30.75 billion, while EPS is expected to increase 10.9% year-over-year to $1.37.
The stock has gained 46.3% over the past year to close the last trading session at $17.88. Over the past six months, it has gained 40%. The stock is trading above its 50-day and 200-day moving averages of $15.99 and $14.2, respectively, indicating an uptrend.
HCMLY’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. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has an A grade for Momentum and Stability and a B for Growth, Value, and Quality. Within the A-rated Industrial - Building Materials industry, it is ranked first out of 46 stocks.
Beyond what we’ve stated above, we have also rated the stock for Sentiment. Get all ratings of HCMLY here.
Amada Co., Ltd. (AMDLY)
Headquartered in Isehara, Japan, AMDLY develops, manufactures, sells, leases, repairs, maintains, checks, and inspects metalworking machinery, software, and peripheral equipment. The company operates in two segments: Metal Processing Equipment; and Metal Machine Tool.
Its annualized dividend is $1.36 per share, which translates to a dividend yield of 2.78% on the current share price. Its four-year average yield is 3.73%.
AMDLY’s trailing-12-month CAPEX/Sales of 3.95% is 30.7% higher than the industry average of 3.02%. Its trailing-12-month gross profit and net income margins of 43.82% and 9.73% are 43.5% and 63.1% higher than the industry averages of 30.53% and 5.96%, respectively.
For the nine months that ended December 31, 2023, AMDLY’s revenue and gross profit increased 10.2% and 10.9% year-over-year to ¥285.22 billion ($1.88 billion) and ¥125.94 billion ($831.69 million), respectively.
For the same period, its profit attributable to owners of parent and basic earnings per share stood at ¥28.01 billion ($184.99 million) and ¥81.51, up 16.5% and 17.9% from the prior-year period, respectively.
Street expects AMDLY’s revenue for the fiscal year ending March 2024 to increase 100.5% year-over-year to $2.71 billion. The company surpassed consensus revenue estimates in three of the trailing four quarters, which is impressive.
The stock has gained 42.4% over the past year to close the last trading session at $48.97. Over the past six months, it has gained 23.2%. The stock is trading above its 50-day and 200-day moving averages of $41.06 and $36.45, respectively, indicating an uptrend.
AMDLY’s POWR Ratings reflect its positive prospects. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.
AMDLY has a B grade for Value, Momentum, Stability, and Quality. Within the A-rated Industrial - Machinery industry, it is ranked first out of 82 stocks.
To see additional POWR Ratings for Growth and Sentiment for AMDLY, click here.
Quanex Building Products Corporation (NX)
NX provides components for the fenestration industry in the U.S., rest of Europe, Canada, Asia, the United Kingdom, and internationally. The company operates through three segments: North American Fenestration; European Fenestration; and North American Cabinet Components.
On February 28, NX’s Board of Directors declared a quarterly cash dividend of $0.08 per share on the company’s common stock, which is payable to shareholders on March 29.
Its annualized dividend is $0.32 per share, which translates to a dividend yield of 0.85% on the current share price. Its four-year average yield is 1.48%. Over the past five years, NX’s dividend payments have grown at a 2.7% CAGR.
NX’s trailing-12-month asset turnover ratio of 1.35x is 70.4% higher than the industry average of 0.79x. Its trailing-12-month net income and levered FCF margins of 7.84% and 7.25% are 31.4% and 10.1% higher than the industry averages of 5.96% and 6.58%, respectively.
For the fiscal first quarter that ended January 31, 2024, NX’s net sales stood at $239.16 million, while operating income increased 79.8% year-over-year to $7.92 million. Moreover, its adjusted EBITDA stood at $19.27 million.
For the same quarter, its adjusted net income and adjusted EPS stood at $5.81 million and $0.18, respectively.
Street expects NX’s revenue and EPS for the fiscal second quarter ending April 2024 to be $268.38 million and $0.56, respectively. The company surpassed consensus revenue and EPS estimates in each of the trailing four quarters.
The stock has gained 86.8% over the past year to close the last trading session at $37.95. Over the past nine months, it has gained 49.6%. The stock is trading above its 100-day and 200-day moving averages of $32.13 and $29.66, respectively, indicating an uptrend.
NX’s POWR Ratings reflect this promising outlook. It has an overall rating of A, which indicates a Strong Buy in our proprietary rating system.
NX has an A grade for Momentum and a B for Value, Stability, and Sentiment. Within the Industrial - Building Materials industry, it is ranked #3.
For NX’s other ratings (Growth and Quality), click here.
Interface, Inc. (TILE)
TILE designs, produces, and sells modular carpet products primarily worldwide. The company operates in two segments: Americas (AMS); and Europe, Africa, Asia and Australia (EAAA).
On March 12, TILE’s Board of Directors declared a regular quarterly cash dividend of $0.01 per share, payable to shareholders on April 12. Its annualized dividend is $0.04 per share, which translates to a dividend yield of 0.23% on the current share price. Its four-year average yield is 0.73%.
On February 15, TILE’s FLOR collaborated with Trina Turk, the ready-to-wear fashion designer known for bright colors and bold patterns. The Trina Turk X FLOR area rug collection includes five unique products that bring the designer’s signature style into interior spaces, influenced by her global travels and love for vintage materials. The collaboration should bode well for TILE.
TILE’s trailing-12-month asset turnover ratio of 1.01x is 27.5% higher than the industry average of 0.79x. Its trailing-12-month gross profit and levered FCF margins of 34.96% and 9.08% are 14.5% and 37.8% higher than the industry averages of 30.53% and 6.58%, respectively.
For the fiscal fourth quarter that ended December 31, 2023, TILE’s net sales stood at $325.12 million, while adjusted gross profit increased 11.7% year-over-year to $124.40 million. Moreover, its adjusted earnings before interest, taxes, depreciation and amortization stood at $52.20 million, up 26.4% from the year-ago quarter.
For the same quarter, its adjusted net income and adjusted EPS increased 31.5% and 32.3% from the prior-year quarter to $23.80 million and $0.41, respectively.
Street expects TILE’s EPS for the fiscal first quarter ending March 2024 to increase 66.7% year-over-year to $0.12. Its revenue is expected to be $284.68 million for the same quarter. The company surpassed consensus EPS estimates in three of the trailing four quarters.
The stock has gained 119.1% over the past year to close the last trading session at $17.12. Over the past nine months, it has gained 105.7%. The stock is trading above its 50-day and 100-day moving averages of $14.02 and $12.51, respectively, indicating an uptrend.
TILE’s robust prospects are reflected in its POWR Ratings. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.
TILE has a B grade for Growth, Momentum, Sentiment, and Quality. It is ranked first out of 5 stocks within the A-rated Industrial - Textiles industry.
Click here for the additional POWR Ratings for TILE (Value and Stability).
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HCMLY shares were unchanged in premarket trading Wednesday. Year-to-date, HCMLY has gained 14.32%, versus a 10.00% rise in the benchmark S&P 500 index during the same period.
About the Author: Neha Panjwani
From her school days, Neha harbored a profound fascination for finance, a passion that steered her toward a career as an investment analyst following the completion of her bachelor's degree in commerce. Currently enrolled in the CFA program, Neha is dedicated to further enriching her comprehension of investment fundamentals. Neha's primary objective is to aid retail investors in discerning optimal investment opportunities by diligently evaluating crucial aspects of financial instruments, with a primary focus on stocks and ETFs. Her commitment lies in empowering individuals to make informed and strategic investment decisions in the dynamic world of finance.
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