Most industrial goods and aerospace stocks right now have high valuations and they're loaded with debt - not a promising recipe for future returns based on sound business and investing principles.
Here for example are tables from finviz.com showing the elevated Price/Earnings, Price/Free Cash Flow, and Debt/Equity metrics of the biggest industrial goods stocks on the market today:
Barnes Group (NYSE:B) on the other hand provides a refreshing contrast:
These are old-fashioned numbers from an old-fashioned industrial company: A reasonable Price/Free Cash Flow of 14.16. Reasonably modest P/E and Forward P/E numbers. Debt/Equity and Long-Term Debt/Equity that's at least under control, below 0.5.
Barnes Group may not be a value stock in the classic sense: Its share price is not beaten down to make it a screaming bargain with ultra-low P/E and Price/Book numbers. Rather I think of it as a "reasonable relatively safer stock" amidst a market of stocks with quite high valuations.
With Barnes stock, you stay invested in the broader stock market, with the potential to make reasonably solid gains as the market rises. But you don't likely face the same level of risk as the stocks that have taken on high levels of debt with share prices that have been bid up to elevated valuations.
Further, the company itself is appealing in many ways. It has been around since 1857, and it has continually modernized and refocused its business to stay up to date with changing times. This company ad illustrated how Barnes kept up with the progress of American industry over many generations - and this ad is from 1928!
Barnes has paid a dividend every year since 1934. To be fair, it is a modest 1.33% dividend, and the company did cut the dividend in half in the 2008-2009 financial crisis. But the 82-year record of dividend payments speaks to the company's long-term reliability.
Barnes has continued to keep its industrial spring manufacturing relevant to the most cutting-edge and technologically advanced industries over the past 80 years as well. The company is proud that in 1954, the world's first atomic-powered submarine, U.S.S. Nautilus, contained 140 different types of their springs in her hull. In 1962, John Glenn's space suit used their springs, as did the Apollo 11 moon landing mission in 1969. And as recently as 2012, the company continued this tradition by producing two different springs used on NASA's Curiosity Rover that landed on Mars.
Barnes Group entered more deeply into the aerospace business in 1981 and 1982 with its acquisitions of Central Metal Products and Windsor Manufacturing. In the decades since then, Barnes has made aerospace a central focus of its business.
An extremely long and innovative history such as Barnes Group has is not a guarantee of a successful company or a successful investment in the future, but it is a promising indicator of reliability that inspires confidence. When buying a stock based on an attractive valuation, a top priority is to avoid a "value trap" that is stuck in a terminal decline. A company that has lasted 159 years probably has a good chance of surviving and thriving long enough for your investment to pay off.
For example, compare Barnes Group to another industrial goods stock that has very similar valuation and financial metrics, EMCOR Group (NYSE:EME). EMCOR may or may not be a good investment, but it only emerged in 1994 from the bankruptcy of Jamaica Water Supply Company. Since then it has grown by acquiring a dozen or so different small industrial companies. If I have to choose between two companies like Barnes Group and EMCOR Group with very similar numbers, I will choose the company with the 159-year history of success over the company with a 22-year history.
I'm not saying you need to run out and buy Barnes Group stock tomorrow. But when you're looking to add an industrial stock to your portfolio that offers both safety and growth, and you have very reasonable concerns about the valuation numbers attached to the big industrial stocks - consider a stock like good old Barnes Group. The valuation probably won't burn you, and the investment just might pay off with some nice upside if the next 10 or 20 years are anything like the last 159.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.