Industrial production remained unchanged in January 2023. However, manufacturing output increased after a substantial fall over the prior two months. Moreover, in January 2023, the Industrial Production Index came in at 103 in the United States, and a value of over 100 shows positive production performance.
Such positive data should bode well for industrial stocks Caterpillar Inc. (CAT), Tennant Company (TNC), and Apogee Enterprises, Inc. (APOG). I think this is the right opportunity to invest and take advantage of their upside potential.
In addition, government initiatives to boost manufacturing should support the growth of the companies operating in this sector. Furthermore, Raymond James Washington Policy Analyst Ed Mills believes North America is 'at the beginning of an industrial renaissance.'
Investors' interest in industrial stocks is evident from the Industrial Select Sector SPDR ETF's (XLI) 5.7% gains over the past six months.
So, let's delve deeper into the stocks mentioned above:
Caterpillar Inc. (CAT)
CAT manufactures and sells construction and mining equipment, diesel and natural gas engines, and industrial gas turbines. Its segments are Construction Industries; Resource Industries; Energy & Transportation; Financial Products; and All Other.
CAT's forward P/E of 15.67x is 18.5% lower than the industry average of 19.22x. Its forward EV/EBIT of 15.19x is compared with the industry average of 15.21x.
Its trailing-12-month EBITDA margin of 20.02% is 50.8% higher than the industry average of 13.27%, while its trailing-12-month net income margin of 11.28% is 76.1% higher than the industry average of 6.41%.
CAT's total sales and revenues came in at $16.60 billion for the quarter that ended December 31, 2022, up 20.3% year-over-year. Its adjusted profit increased 37.9% year-over-year to $2.01 billion, while its adjusted EPS increased 43.5% year-over-year to $3.86.
Analysts expect CAT's revenue to increase 7.1% year-over-year to $63.67 billion in the current fiscal year, 2023. Its EPS is expected to increase by 13.2% per annum for the next five years. It surpassed EPS estimates in all four trailing quarters. Over the past year, the stock has gained 27.7% to close the last trading session at $239.55.
CAT's strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which indicates a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
CAT has a B grade for Growth. Within the A-rated Industrial – Machinery industry, it is ranked #19 out of 79 stocks. Click here for the additional POWR Rating for Value, Momentum, Stability, Sentiment, and Quality for CAT.
Tennant Company (TNC)
TNC and its subsidiaries design, manufacture, and market floor cleaning equipment in the Americas, Europe, the Middle East, Africa, and the Asia Pacific.
TNC's forward EV/Sales of 1.41x is 18.9% lower than the industry average of 1.74x. Its forward Price/Sales of 1.18x is 15.8% lower than the industry average of 1.41x.
Its trailing-12-month gross profit margin of 38.56% is 33.4% higher than the industry average of 28.91%. Its trailing-12-month ROCE of 14.66% is 5.7% higher than the industry average of 13.86%.
TNC's net sales came in at $291 million for the fourth quarter that ended December 31, 2022, up 5.3% year-over-year. Its adjusted net income increased 101.5% year-over-year to $27.20 million. Moreover, its adjusted EPS came in at $1.46, representing a 105.6% year-over-year rise.
Street expects TNC's revenue to increase 4.9% year-over-year to $1.15 billion in the current fiscal year 2023. Its EPS is expected to increase by 15% per annum for the next five years. Over the past month, the stock has gained 5.1% to close the last trading session at $70.82.
TNC has an overall A rating, equating to a Strong Buy in our POWR Ratings system.
Also, the stock has a B grade for Growth, Value, and Quality. Within the same industry, it is ranked #6. Get additional POWR Ratings for TNC (Momentum, Stability, and Sentiment) here.
Apogee Enterprises, Inc. (APOG)
APOG designs and develops glass and metal products and services in the United States, Canada, and Brazil. The company operates in four segments: Architectural Framing Systems; Architectural Glass; Architectural Services; and Large-Scale Optical Technologies (LSO).
APOG's forward EV/Sales of 0.86x is 50.3% lower than the industry average of 1.74x. Its forward Price/Sales of 0.70x is 50.1% lower than the industry average of 1.41x.
Its trailing-12-month ROCE and ROTC of 15.88% and 13.87% are 14.6% and 100% higher than the industry averages of 13.86% and 6.94%.
APOG's net sales came in at $367.85 million for the quarter that ended November 26, 2022, up 10.1% year-over-year. Its adjusted net earnings increased 49.7% year-over-year to $23.77 million. Also, the company's adjusted EPS came in at $1.07, up 69.8% year-over-year.
APOG's revenue is expected to increase 10% year-over-year to $1.44 billion in the current fiscal year, 2023. Its EPS is expected to increase 59.7% year-over-year to $3.96 for the same period. It surpassed EPS estimates in all four trailing quarters. The stock has gained marginally over the past month to close the last trading session at $45.76.
APOG's POWR Ratings reflect this promising outlook. The stock has an overall A rating, equating to a Strong Buy in our POWR Ratings system.
Also, the stock has an A grade for Growth and a B for Value, Momentum, and Quality. APOG is ranked #2 out of 47 stocks in the A-rated Industrial - Building Materials industry. Beyond the ratings above, we have also rated APOG for Stability and Sentiment. Click here to see all ratings.
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CAT shares were unchanged in premarket trading Wednesday. Year-to-date, CAT has gained 1.73%, versus a 3.47% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.
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