Amidst a backdrop of burgeoning domestic manufacturing, heightened mineral and metal demand, escalated economic activity, increased infrastructure spending, elevated technology integration, supportive government initiatives, and growing demand for industrial equipment, the industrial sector appears primed for substantial expansion.
Hence, it could be prudent to consider buying fundamentally strong industrial stocks: Mitsubishi Corporation (MSBHF), Anglo American plc (NGLOY), and International Paper Company (IP).
Before delving into the fundamentals of these stocks, let us first explore the prevailing factors shaping the industry's prospects.
Automation and modernization endeavors enhance industrial productivity, with technologies such as Artificial Intelligence (AI), machine learning, big data analytics, and the Internet of Things (IoT) playing pivotal roles in optimizing manufacturing processes. The global Industry 4.0 market is anticipated to grow at a compound annual growth rate (CAGR) of 20.7%, reaching $482 billion by 2032.
Also, the interconnected global economy prompts businesses to seek specialized industrial services to navigate international regulations, logistics, and supply chain complexities. Additionally, the expansion of industrial activities and the continuous growth of manufacturing sectors contribute to the demand for industrial services.
The global industrial services market is expected to reach $51.98 billion in 2032, expanding at a CAGR of 5.7%. Favorable government initiatives, like the $1.2 trillion Bipartisan Infrastructure Bill (now the Infrastructure Investment and Jobs Act), have allocated $550 billion to strengthen U.S. infrastructure.
This move will boost demand for metals, machinery, and vital industrial products. The Inflation Reduction Act, enacted the previous year, also aims to revitalize domestic manufacturing, collectively setting the stage for the progress of the industrial sector. The global metal and metal manufactured products market is expected to reach $18.50 trillion by 2030, growing at a CAGR of 5.2%.
Moreover, thanks to the boom in online shopping, the demand for packaging paper and board has grown considerably. Sustainable paper packaging solutions, environment-friendly coverings, and secure and protective packaging will drive the industrial paper industry’s growth. The global pulp and paper market is projected to reach $372.70 billion by 2029.
Considering these conducive trends, let’s take a look at the fundamentals of the three industrial stocks.
Mitsubishi Corporation (MSBHF)
Headquartered in Tokyo, Japan, MSBHF engages in natural gas, industrial materials, and infrastructure, automotive and mobility, and urban development businesses. It operates through the Natural Gas, Industrial Materials, Petroleum & Chemicals, Mineral Resources, Industrial Infrastructure, Food Industry, Consumer Industry, Power Solution, and Urban Development segments.
On October 24, 2023, MSBHF announced the extension of its interest in Oman LNG and Qalhat LNG businesses through an agreement with the Oman government, solidifying its commitment to fostering a friendly relationship with Oman and contributing to stable energy supply and low-carbon economic activities.
The move enhances MSBHF's presence in the LNG sector and underscores its dedication to sustainable practices.
In terms of the trailing-12-month asset turnover ratio, MSBHF’s 0.89x is 10.7% higher than the 0.80x industry average.
MSBHF’s revenue for the six months ended September 30, 2023, amounted to ¥9.56 trillion ($67.41 billion). Its gross profit came in at ¥1.15 trillion ($8.11 billion). Its profit for the period attributable to owners of the parent stood at ¥466.08 billion ($3.29 billion). Additionally, its cash and cash equivalents at the end of the period increased 7.2% year-over-year to ¥1.53 trillion ($10.79 billion).
Analysts expect MSBHF’s fiscal 2024 revenue to increase 714.8% year-over-year to $136.62 billion. The stock has gained 47.8% year-to-date to close the last trading session at $46.93.
MSBHF’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates 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 Momentum and Stability and a B for Value. Within the B-rated Industrial – Services industry, it is ranked #26 out of 80 stocks. In addition to the POWR Ratings highlighted above, one can check MSBHF’s Growth, Sentiment, and Quality ratings here.
Anglo American plc (NGLOY)
Headquartered in London, the United Kingdom, NGLOY is a global mining company that explores rough and polished diamonds, copper, platinum group metals, metallurgical and thermal coal, steelmaking coal, and iron ore; and nickel, polyhalite, and manganese ores, as well as alloys.
On November 14, 2023, NGLOY announced the launch of Valutrax™, a blockchain-based digital traceability solution providing customers with transparent access to core information about metals and minerals from source to customer, aiming to ensure compliance with industry requirements and support sustainability strategies.
The platform, currently available to customers purchasing ferronickel, copper concentrates, and iron ore mined products, reflects NGLOY's commitment to sustainable mining practices and enhances transparency across its production and logistics chain, potentially bolstering its reputation and customer trust.
In terms of the trailing-12-month gross profit margin, NGLOY’s 56.68% is 99.4% higher than the 28.43% industry average. Likewise, its 23.26% trailing-12-month EBIT margin is 104.5% higher than the industry average of 11.38%. Furthermore, the stock’s 18.65% trailing-12-month Capex/Sales is 154% higher than the industry average of 7.34%.
For six months that ended June 30, 2023, NGLOY’s revenue stood at $15.67 billion. Its underlying EBITDA came in at $5.11 billion. The company’s profit attributable to equity shareholders of the company and earnings per share stood at $1.26 billion and $1.03, respectively.
Over the past month, the stock has declined 14.5% to close the last trading session at $11.39.
NGLOY’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has an A grade for Value. Within the Industrial – Metals industry, it is ranked #8 out of 33 stocks. In addition to the POWR Ratings highlighted above, one can check NGLOY’s Growth, Momentum, Stability, Sentiment, and Quality ratings here.
International Paper Company (IP)
IP produces renewable fiber-based packaging and pulp products in North America, Latin America, Europe, and North Africa. It operates through Industrial Packaging and Global Cellulose Fibers segments.
In terms of the trailing-12-month Return on Common Equity, IP’s 8.24% is 8.2% higher than the 7.61% industry average. Likewise, its 0.80x trailing-12-month asset turnover ratio is 13.1% higher than the industry average of 0.70x. Its 5.57% trailing-12-month Return on Total Capital is 0.2% higher than the 5.56% industry average.
IP’s net sales for the third quarter that ended September 30, 2023, stood at $4.61 billion. The company’s adjusted operating earnings came in at $224 million. Its net earnings came at $165 million. Also, its free cash flow rose 21.8% year-over-year to $240 million. In addition, its cash provided by operating activities increased 7.6% over the prior-year quarter to $468 million.
It has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. Over the past six months, the stock has gained 18.5% to close its last trading session at $37.67.
IP’s solid prospects are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has a B grade for Value and Quality. It is ranked #4 out of 10 stocks in the B-rated Industrial – Paper industry. To see additional ratings of IP for Growth, Momentum, Stability, and Sentiment, click here.
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MSBHF shares were trading at $47.56 per share on Friday afternoon, up $0.63 (+1.35%). Year-to-date, MSBHF has gained 49.80%, versus a 24.34% 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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