6 growth industrial stocks that are at least 10% below ATH
The industrial sector has ceased to be synonymous with slow cyclical business with single-digit growth. The capital cycle driven by data centers, grid electrification, armament, and logistics automation has created a group of companies growing at a pace previously reserved for technology stocks, but trading with significantly different valuation assumptions. This analysis examines six such names, their real earnings power, and the risks that many numbers conceal.
Key points
Industrial companies are starting to grow at the pace of technology stocks. Data centers, armament, energy, and automation are engulfing the entire sector.
All 6 stocks are at least 10% below their highs. But behind the decline lie very different reasons, and for some, the fundamentals continue to grow significantly.
A strong order book may not yet be only positive news. It may also show that companies are failing to translate enormous demand into actual revenue.
For four of the six companies, common screeners can lead to a wrong conclusion. P/E, ROIC, or target prices here often measure something other than what appears at first glance.
Six different companies may hide one common risk. Although they operate in different sectors, a large part of their growth story rests on the same capital cycle.
Industrial stocks have become one of the most prominent beneficiaries of a capital cycle that began elsewhere over the past two years. Demand for computing power spilled over into demand for energy, cooling, substations, turbines, and construction equipment, defense budgets in Europe and the United States moved from plans to signed contracts, and warehouse automation advanced from pilot projects to widespread deployment.
The result is a situation where the sector fund Industrial Select Sector SPDR (XLI) is up 13.62% year-to-date and 16.82% over 12 months, while the &P 500 index via SPDR S&P 500 ETF $SPY adds 12.94% and 20.08%, respectively. However, this average hides enormous dispersion. Within the sector, we find names with more than 50% appreciation and others losing nearly a third of their value this year.
The following six cover four different exposures to the same investment story: construction and mining equipment and energy systems, defense and aircraft engines, critical data center infrastructure, and robotics. Which companies are they?