Seeking Alpha
Value, growth, long-term horizon, medium-term horizon
Profile| Send Message| ()  

Are you looking for investment opportunities in the industrials sector during earnings season? We researched companies with strong upward momentum, and that are expected to report earnings next week.

We began by screening the industrials sector for stocks that are rallying above their 20-day, 50-day, and 200-day moving averages, indicating that these stocks have strong upward momentum. Could there be a possible fundamental reason for this rally?

In addition to technical analysis, positive fundamental trends are an encouraging sign for investors. From our list we analyzed the fundamentals of the companies for those with strong sales trends by comparing growth in revenue to growth in inventory over the last year. We screened for stocks with positive sales trends, with faster growth in revenue than inventory over the last year. Since inventory represents the portion of goods not yet sold, faster growth in revenue than inventory is considered an encouraging sign.

Our final list consisted of 3 stocks that met the criteria.

A Closer Look

We looked at Trex Company Inc. (TREX) in more detail. The stock is trading around $44.32, close to its 52-week high of $44.99, up 74% in the past 1 year. It is trading with a P/E multiple of 31 times, and does not pay a dividend. One of its competitors, Universal Forest Products (UFPI) trades with a P/E multiple of 25 times, and pays a 1% dividend.

The company has a lean balance sheet with $2 million long-term debt in the form of borrowings under a line of credit, and $2.5 million in cash and cash equivalents. A significant achievement for the company is that for the nine months ended September 30th, 2012, Trex generated $58 million in free cash flow. The company has done an excellent job in de-levering. In July 2012, the company repaid $91.9 million of its outstanding convertible notes. Today the company has zero public debt.

As the U.S. housing sector improves, Trex could benefit from an increase in home improvements, and construction activity.

Are you a believer in Trex?

The List

For an interactive version of this chart, click on the image below. Analyst ratings sourced from Zacks Investment Research.

Do you think these stocks are poised to outperform? Use this list as a starting point for your own analysis.

1. Daktronics, Inc. (DAKT): Engages in the design, manufacture, and sale of various electronic display systems and related products, as well as the rendering of related maintenance and professional services worldwide.

  • Market cap at $513.88M, most recent closing price at $12.16.
  • Revenue grew by 10.27% during the most recent quarter ($149.87M vs. $135.91M y/y). Inventory grew by 1.89% during the same time period ($53.83M vs. $52.83M y/y). Inventory, as a percentage of current assets, decreased from 20.93% to 20.71% during the most recent quarter (comparing 13 weeks ending 2012-10-27 to 13 weeks ending 2011-10-29).
  • The company is expected to report earnings on February 19th, 2013.
  • The stock is currently trading 3% above its 20-day moving average, 10% above its 50-day moving average, and 42% above its 200-day moving average.

2. Nordson Corporation (NDSN): Manufactures equipment used for precision dispensing, testing and inspection, and surface preparation and curing.

  • Market cap at $4.52B, most recent closing price at $70.14.
  • Revenue grew by 32.52% during the most recent quarter ($438.68M vs. $331.02M y/y). Inventory grew by 19.51% during the same time period ($169.59M vs. $141.91M y/y). Inventory, as a percentage of current assets, decreased from 29.75% to 28.91% during the most recent quarter (comparing 13 weeks ending 2012-10-31 to 13 weeks ending 2011-10-31).
  • The company is expected to report earnings on February 21st, 2013.
  • The stock is currently trading 4% above its 20-day moving average, 9% above its 50-day moving average, and 22% above its 200-day moving average.

3. Trex Co. Inc.: Distributes wood/plastic composite products primarily for residential and commercial decking and railing applications in the United States.

  • Market cap at $758.57M, most recent closing price at $44.78.
  • Revenue grew by 4.27% during the most recent quarter ($70.82M vs. $67.92M y/y). Inventory grew by -73.93% during the same time period ($8.6M vs. $32.99M y/y). Inventory, as a percentage of current assets, decreased from 32.76% to 18.59% during the most recent quarter (comparing 3 months ending 2012-09-30 to 3 months ending 2011-09-30).
  • The company is expected to report earnings on February 19th, 2013.
  • The stock is currently trading 6% above its 20-day moving average, 11% above its 50-day moving average, and 32% above its 200-day moving average.

*Accounting data sourced from Google Finance, all other data sourced from Finviz.

Source: 3 Rallying Industrial Stocks Reporting Earnings In February With Encouraging Inventory Trends