Industrial companies make a variety of products that are often behind the scenes and taken for granted. However, these products are paramount to running other businesses and the economy as a whole. As the worldwide economy grows steadily higher, these companies are poised to beat the performance of the S&P 500.
Standex International (SXI) is a $516.24 million Salem, New Hampshire based small-cap industrial goods manufacturer. It specializes in commercial food service equipment for restaurants, supermarkets, drug stores, hotels, casinos, medical facilities, school facilities, etc. It also produces metal ducts and fittings for HVAC systems; engineered components for aerospace, energy, defense, aviation, marine, healthcare, medical, and more; piston rod hydraulic cylinders for dump trucks/trailers; reed switches; electrical connectors; sensors; transformers; magnetic components, and more.
Standex sports a forward PE ratio of 11.47, a PEG of 1.08, and an attractive price to book ratio of only 2.12. These figures show Standex as an undervalued company, ripe for the picking.
Standex rakes in $41.17 million in operating cash flow and $30.14 in free cash flow. It pays a modest dividend of 0.70%. It has 2.1 times more current assets than current liabilities.
This company has grown earnings annually at a nice 26.53% for the last five years and is expected to grow earnings annually at 12% for the next five years. This should be plenty for the stock to edge higher than the S&P 500 over five years. I'll give it a price target of $70 by 2017, which equates to a 75% overall gain.
Manitowoc (MTW) is a $2.1 billion Wisconsin based mid-cap manufacturer of cranes, crane related products, and food service equipment. Its crane products are sold under the following brand names: Manitowoc, Potain, Grove, Shuttlelift, National, and Dongyue. The foodservice segment includes the following brands: Frymaster, Cleveland, Convotherm, Delfield, Garland, Jackson, SerVend, Merrychef, Kolpak, Kysor Warren, Multiplex, and Manitowoc.
Manitowoc also looks undervalued with a forward PE ratio of 10.54 and a low PEG of 0.26. The stock trades at 4.44 times book value per share and has a price to sales ratio of only 0.58.
The company has a nice operating cash flow of $11.6 million and free cash flow of $66.81 million. It has 1.12 times more current assets than current liabilities. It pays a small dividend of 0.50%.
MTW has 2 upward earnings revisions for 2012 and 3 upward revisions for 2013. It is expected to grow earnings annually at an aggressive 70% for the next five years. My normal calculation for predicting the future stock price would take the current stock price of $16 up to $227 by 2017. Although aggressive, it is conceivably possible if MTW can manage to achieve or exceed its annual earnings expectations.
Dover Corporation (DOV) is a $12.06 billion Illinois based large-cap manufacturer of industrial goods. It operates in the following four segments: Industrial Products, Engineered Systems, Fluid Management, and Electronic Technologies. Some of the products that are produced in these segments are: industrial automation tools, hydraulic parts, compactors, bailers, foodservice equipment, gas well production control devices, motors, control valves, generators, soldering equipment, specialty electronic equipment, and more.
Dover is another undervalued industrial company. This shows with a forward PE ratio of 12.07, a PEG of 1.11, a price to book ratio of 2.44, and a price to sales ratio of 1.51.
Dover generates $1.08 billion in operating cash flow and $383.19 million in free cash flow. It rewards investors with a dividend of 1.9%. The balance sheet shows that Dover has 2.75 times more current assets than current liabilities.
The company has exceeded its earnings estimates in the last four quarters. It has two upward earnings revisions for 2012. Dover is expected to grow earnings annually at 12.15% for the next five years. This should place its current stock price of $65 at around $100 by 2017 (a total gain of 54%).
Goodrich (GR) is a $15.77 billion Charlotte, NC based large-cap aerospace & defense producer. Some of its products include: actuators for flight control, helicopters, engines, precision weapons, and land vehicles; exhaust systems; interior cabin furnishings; engine control systems; aircraft engine sensors; and more.
Goodrich is currently fairly valued with a forward PE ratio of 15.85, a PEG ratio of 1.18, a price to book ratio of 4.26, and a price to sales ratio of 1.95.
GR pulls in $1.18 billion in operating cash flow and $702.69 million in free cash flow. Some of this cash is given back to shareholders with its 0.90% dividend. The balance sheet shows that GR has 2.63 times more current assets than current liabilities.
Goodrich has four upward earnings revisions for 2012 and two for 2013. It is expected to grow earnings annually at a healthy 15.33% for the next five years. This is solid steady growth that should allow the current stock price of $125 to rise to around $255 by 2017 (104% increase).
The industrial companies do have challenges such as rising material costs and variable demand; however, manufacturers are becoming more confident in the economy. Businesses are in better financial shape after recovering from the Great Recession, banks are recapitalized, and most households are getting their cash flow in order. As businesses and consumers gain confidence, the world economy will continue to grow. This growth will bring continued opportunities to the industrial sector for increased orders which will lead to higher earnings and stock prices.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.