The Fed’s six interest rate hikes this year slowed down industrial production in October. The overall industrial production dipped 0.1% in October after edging up 0.1% in September. However, total industrial production rose 3.3% year-over-year in the same month.
The Bipartisan Infrastructure Law is expected to bolster the demand for companies in this space through industrial development projects in the country. So far, 2,800 bridge repair and replacement projects have been announced under the infrastructure bill.
Moreover, accelerated adoption of technologically advanced products and sustainability practices should boost the sector’s growth. The industrial machinery market size is expected to grow at a CAGR of 3.6% to reach $835.34 billion by 2028.
As recessionary concerns continue to create market chaos, the industrial sector remains resilient. The Industrial Select Sector SPDR ETF (XLI) has gained 9.2% over the past three months compared to the S&P 500’s 1% increase.
Given this backdrop, it could be wise to buy fundamentally strong industrial machinery stocks Deere & Company (DE), Caterpillar Inc. (CAT), and Thermon Group Holdings, Inc. (THR).
Deere & Company (DE)
DE manufactures, distributes, and delivers various agricultural, construction, and forestry equipment worldwide. The company operates through four segments: Production and Precision Agriculture, Small Agriculture and Turf, Construction and Forestry, and Financial Services.
On October 31, 2022, DE announced entering a partnership with Advantage Capital to increase investment in supporting underrepresented entrepreneurs and business owners. DE’s commitment to Advantage Capital’s Empower the Change (EPC) growth fund as a lead investor is a part of the company’s broader objective of allocating $500 million within the next three years to identify and grow relationships with underrepresented and disadvantaged business enterprises and create equitable wealth within the agriculture industry.
In the fiscal 2022 fourth quarter ended October 30, 2022, DE’s net sales and revenues increased 37.2% year-over-year to $15.54 billion. Its operating profit grew 74.8% from the prior-year quarter to $2.96 billion. The company’s net income came in at $2.25 billion, up 75.1% year-over-year, while its EPS rose 80.6% year-over-year to $7.44.
The consensus EPS estimate of $5.41 for the first quarter (ending January 31, 2023) indicates an 85.3% year-over-year improvement. The consensus revenue estimate for the current quarter of $11.21 billion reflects an increase of 31.4% from the prior year. Shares of DE have gained 27.4% year-to-date to close the last trading session at $436.89.
DE’s POWR Ratings reflect its solid prospects. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Growth and Sentiment. In the 79-stock B-rated Industrial-Machinery industry, it is ranked #35. Click here to see the other ratings of DE for Value, Momentum, Stability, and Quality.
Caterpillar Inc. (CAT)
CAT manufactures and sells construction and mining equipment, diesel and natural gas engines, and industrial gas turbines. The company operates through five segments: Construction Industries, Resource Industries, Energy & Transportation, Financial Products, and All Other.
On November 22, 2022, CAT announced a successful demonstration of its first battery electric 793 large mining truck and a significant investment in a sustainable proving ground. Resource Industries Group President Denise Johnson said, "This demonstration is a significant milestone, and we are excited for these trucks to get to work at customers' sites around the world in the near future."
For the fiscal third quarter ended September 30, 2022, CAT’s total sales and revenues increased 20.9% year-over-year to $14.99 billion. Its adjusted operating profit came in at $2.47 billion, up 45.6% from the prior-year period. The company’s adjusted profit rose 43% from the prior-year quarter to $2.08 billion, while its profit per share increased 48.5% year-over-year to $3.95.
Analysts expect CAT’s EPS and revenue for the fourth quarter ending December 31, 2022, to increase 48.4% and 14.8% year-over-year to $3.99 and $15.84 billion, respectively. Also, CAT has an excellent surprise earnings history, surpassing consensus EPS estimates in each of the trailing four quarters.
The stock has gained 28.6% over the past three months and 12.5% year-to-date to close the last trading session at $232.57.
CAT’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, translating to Buy in our proprietary rating system. It has a B grade for Sentiment and is ranked #12 out of 79 stocks in the Industrial-Machinery industry.
Click here to see the other ratings of CAT for Growth, Value, Momentum, Stability, and Quality.
Thermon Group Holdings, Inc. (THR)
THR provides engineered industrial process heating solutions for process industries through four geographical segments: the United States and Latin America (US-LAM); Canada; Europe, Middle East, and Africa (EMEA); and Asia-Pacific (APAC). It offers a range of heat tracing products and solutions for industrial and hazardous locations and commercial applications.
On June 1, 2022, THR acquired Powerblanket, a leading provider of heated blankets built upon patented heat-spreading technology and portable industrial chillers. This acquisition complements THR’s expertise in thermal management technology while expanding into adjacent product lines and increasing access to growing, diversified end markets.
THR’s sales increased 23.7% year-over-year to $100.56 million for the second quarter that ended September 30, 2022. Its adjusted EBITDA increased 91.6% year-over-year to $21.91 million. The company’s adjusted net income rose 226.7% from the prior-year quarter to $12.85 million, while its adjusted EPS came in at $0.38, representing an increase of 216.7% year-over-year.
Analysts expect THR’s EPS and revenue for the fiscal year (ending March 31, 2022) to increase 62.6% and 15.8% year-over-year to $1.35 and $411.97 million, respectively. The company surpassed the consensus EPS estimates in each of the trailing four quarters.
The stock has gained 30.2% over the past nine months and 19.2% year-to-date to close the last trading session at $20.18.
THR’s strong 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.
It has an A grade for Sentiment and a B for Quality. Within the Industrial - Machinery industry, it is ranked #4. Click here to see THR's other ratings for Growth, Value, Momentum, and Stability.
DE shares were trading at $435.67 per share on Tuesday morning, down $1.22 (-0.28%). Year-to-date, DE has gained 28.27%, versus a -15.76% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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