The industrial sector, recognized for its catalytic role in transitioning from traditional manufacturing to championing sustainable practices, persistently maintains its global prominence. As an essential component of the economy, this segment is braced for prolonged augmentation propelled by technological progression and amplified government backing.
Therefore, investors could consider investing in fundamentally robust industrial stocks Siemens Aktiengesellschaft (SIEGY), EMCOR Group (EME), and Karat Packaging (KRT).
The industrial sector demonstrated impressive robustness despite enduring geopolitical turmoil and high interest rates. The sector is primed for considerable growth, fueled by a resounding upswing in global economic endeavors and rapid industrialization, particularly noticeable within the Asia-Pacific region.
Significant advancements within the industrial sector are anticipated with the extensive incorporation of smart factories and pioneering technology. Groundbreaking facilities are transforming traditional shop floors and operations while predictive maintenance and digital twin technologies are lending manufacturers an improved basis for decision-making.
Technical advancements like AI, machine learning, and cutting-edge data analysis are escalating industrial productivity and manufacturer efficiency. AI-driven decisions are adopted across various sectors, covering inventory organization, production line assessments, supply chain coordination, and quality inspections.
Further bolstering the sector, supportive government incentives like the $1.2 trillion Bipartisan Infrastructure Bill, now legislated as the Infrastructure Investment and Jobs Act, aim to channel $550 billion of fresh federal investment into American infrastructure.
Echoing the positive market sentiment, the Industrial Select Sector SPDR Fund’s (XLI) 9.7% gain over the past year substantiates the flourishing investors' interest in industrial equities.
With these favorable trends in mind, let's delve into the fundamentals of the three industrial stock picks.
Siemens Aktiengesellschaft (SIEGY)
Headquartered in Munich, Germany, SIEGY is a technology powerhouse concentrating on automation and digitalization. The company is organized into five segments: Digital Industries; Smart Infrastructure; Mobility; Siemens Healthineers; and Siemens Financial Services.
On November 30, Siemens Mobility and European Locomotive Leasing Group (ELL), based in Vienna and Munich, allied by signing a framework agreement to deliver up to 200 additional Vectron locomotives. This fourth agreement cements the enduring and formidable partnership between ELL and Siemens Mobility.
Furthermore, with the potential to expand the Vectron fleet to over 400 locomotives in the medium term, this accord solidifies Siemens Mobility’s market presence and showcases its pivotal role in shaping Europe’s rail infrastructure landscape.
On November 27, Siemens Smart Infrastructure announced a collaboration with Copperleaf, a Canadian provider of asset investment planning software. The partnership, integrated into the Siemens Xcelerator platform, aims to optimize investment and technical grid planning for customers.
The collaboration would position Siemens Smart Infrastructure to leverage enhanced capabilities to meet customer needs effectively. It would aid SIEGY in driving financial success through innovative solutions in smart infrastructure and digital business platforms.
Its annualized dividend rate of $2.29 per share translates to a dividend yield of 2.59% on the current share price. Its four-year average yield is 5.14%. SIEGY’s dividend payments have grown at a 2.6% CAGR over the past three years.
SIEGY’s trailing-12-month cash from operations of $12.94 billion is significantly higher than the industry average of $293.14 million. Its trailing-12-month gross profit and net income margins of 38.13% and 10.22% are 25.9% and 68.5% higher than the industry averages of 30.28% and 6.07%, respectively.
In the fiscal fourth quarter that ended September 30, 2023, SIEGY’s revenue increased 4% year-over-year to €$21.39 billion ($23.07 billion). Its gross profit grew 7.3% from the year-ago value to €$8.24 billion ($8.88 billion).
For the same quarter, net income attributable to shareholders of SIEGY and net income per share stood at €1.72 billion ($1.85 billion) and €2.14, respectively. As of September 30, 2023, SIEGY’s total current assets came at €60.64 billion ($65.39 billion), compared to €58.83 billion ($63.44 billion) as of September 30, 2022.
Street expects SIEGY’s revenue and EPS for the fiscal year ending September 2024 to increase 3.4% and 35.6% year-over-year to $87.24 billion and $7.68, respectively. Its revenue for the fiscal first quarter ending December 2023 is expected to increase 5.1% year-over-year to $20.39 billion. The company surpassed consensus EPS estimates in three of the trailing four quarters, which is impressive.
The stock has gained 28.3% year-to-date to close the last trading session at $88.28. Over the past month, it has gained 25.6%.
SIEGY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
SIEGY has a B grade for Value, Stability, and Quality. It has ranked #2 out of 36 stocks within the B-rated Industrial – Manufacturing industry.
In addition to the POWR Ratings highlighted above, one can see SIEGY’s ratings for Growth, Momentum, and Sentiment here.
EMCOR Group (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 October 30, EME paid a regular quarterly dividend of $0.18 per common share to stockholders of the company. Its annualized dividend rate of $0.72 per share translates to a dividend yield of 0.33% on the current share price.
Its four-year average yield is 0.41%. EME’s dividend payments have grown at CAGRs of 29.2% and 16.6% over the past three and five years, respectively. The company has paid dividends for 12 consecutive years.
In terms of the trailing-12-month ROCE, ROTC, and ROTA of 26.59%, 18.17%, and 8.80% are 118.1%, 163.5%, and 78% higher than the industry averages of 12.19%, 6.90%, and 4.94%, respectively. Its 2.07x trailing-12-month asset turnover ratio is 159.8% higher than the 0.80x industry average.
In 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. For the nine months that ended September 30, 2023, cash, cash equivalents, and restricted cash at the end of the period increased 29.3% from the year-ago period to $523.63 million.
Street expects EME’s revenue and EPS for the fiscal fourth quarter ending December 2023 to increase 13.7% and 35.4% year-over-year to $3.36 billion and $3.56, respectively. The company surpassed consensus revenue and EPS estimates in each of the trailing four quarters.
The stock has gained 46.3% year-to-date to close the last trading session at $216.73. Over the past nine months, it has gained 36.8%.
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 79 stocks within the B-rated Industrial – Services industry.
To see the additional POWR Ratings of EME for Value and Stability, click here.
Karat Packaging (KRT)
KRT manufactures and distributes single-use disposable products. It offers plastic, paper, biopolymer-based products, and other compostable forms used in several restaurant and food service settings. The company serves national and regional distributors, restaurant chains, retail establishments, and online customers.
On November 30, KRT paid a regular quarterly dividend of $0.20 per share on the company’s common stock, reflecting an increase from the previous quarterly dividend of $0.10 per share. This increase in its quarterly cash dividend reflects the company’s robust capital structure and ability to provide stable growth in the long run.
Its annualized dividend rate of $0.80 per share translates to a dividend yield of 3.68% on the current share price. Its four-year average yield is 1.46%.
On September 19, KRT completed a strategic initiative to expand its national salesforce with the addition of five experienced sales representatives focusing on the East Coast and Mid-West regions. The new team will further enhance KRT’s regional presence and demonstrate their commitment to fulfilling the long-term growth initiatives.
KRT’s trailing-12-month asset turnover ratio of 1.55x is 94.2% higher than the industry average of 0.80x. Its trailing-12-month gross profit and levered FCF margins of 36.90% and 10.93% are 21.9% and 80.1% higher than the industry averages of 30.28% and 6.07%, respectively.
In the fiscal third quarter that ended September 30, 2023, KRT’s net sales stood at $105.53 million, while gross profit increased 14% year-over-year to $38.94 million. Moreover, its adjusted EBITDA stood at $15.23 million, up 29.6% from the year-ago quarter.
For the same quarter, net income attributable to KRT and adjusted earnings per common shares increased 48.7% and 42.4% from the prior-year quarter to $9.07 million and $0.47, respectively.
KRT expects net sales to increase by 2% to 5% during the fourth quarter. The gross margin goal for the fourth quarter is estimated at 36% to 38%.
Street expects KRT’s revenue and EPS for the fiscal fourth quarter ending December 2023 to increase 3.1% and 60.7% year-over-year to $95.49 million and $0.45, respectively. The company surpassed consensus EPS estimates in three of the trailing four quarters.
The stock has gained 54.6% over the past nine months to close the last trading session at $21.74. Over the past year, it has gained 59.3%.
KRT’s robust prospects are reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
The stock has an A grade for Momentum and Quality and a B for Growth, Value, and Sentiment.
KRT topped the list of 20 stocks in the B-rated Industrial – Packaging industry.
Click here to access all KRT’s ratings (Stability).
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SIEGY shares were unchanged in premarket trading Wednesday. Year-to-date, SIEGY has gained 31.11%, versus a 22.70% 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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