2 Great Ways To Play The Growth In Precision Manufacturing

by: Justin Kuepper

The global economy may be more perilous than ever, but that doesn't mean that companies are slowing down. The Empire State manufacturing index jumped to 19.53 this month, from 13.48 in January, exceeding most analysts' expectations. Meanwhile, factory output increased 0.7% after a revised 1.5% gain in December that was the highest in five years.

The beneficiaries of this growth have been the manufacturing industry's suppliers, including the makers of precision equipment used in general manufacturing applications. Investors confident in a continued recovery may therefore want to consider these stocks as a play on both the recovery and an increasingly precision-driven world in manufacturing.

Some popular companies in this sector include:

  1. Cognex Corporation (NASDAQ:CGNX)
  2. FARO Technologies Inc. (NASDAQ:FARO)
  3. SmartHeat Inc. (NASDAQ:HEAT)
  5. Measurement Specialists Inc. (NASDAQ:MEAS)
  6. MTS Systems Corporation (NASDAQ:MTSC)

Cognex is Perfect for Income Portfolios

Cognex Corporation is the largest player of the bunch, with a market capitalization of around $1.8 billion. The company is a leader in the production of machine vision products that capture and analyze visual information in order to automate tasks. The end markets for these products range from the semiconductor industry to the automotive industry.

Over the past year, the stock has risen 20.76% and now trades near its 52 week high of $44.80 per share at $43.22 per share. And the company also offers an attractive dividend yield of about 0.93% on its shares. However, its 26.47x price-earnings multiple exceeds its top-line growth rate of 11% over the past year and its bottom-line net income growth of 22%.

Overall, Cognex represents a solid investment opportunity for income investors looking to add a manufacturing stock to their portfolios, with its 0.93% dividend yield and solid performance over the past two years.

Look to FARO Technologies for Growth

FARO Technologies Inc. is another large player in the sector, with a market capitalization of around $970 million. The company develops three-dimensional measurement and imaging systems that are used in a wide range of manufacturing applications. And the firm's customers include companies like Boeing, Ford, GE, Honda and Siemens, among others.

Over the past year, the stock has jumped nearly 100%, and now trades just around its 52 week high of $59.22 at $58.34. The company is a bit riskier than Cognex, but has realized significantly higher growth rates over the past year, with year-over-year quarterly revenue growth of 176.2%. Meanwhile, the stock trades with a price-earnings multiple of just 50x.

In the end, FARO represents a great opportunity for growth investors willing to assume some extra risk in their portfolios. And with its triple-digit growth rates, the current price-earnings multiple could even prove to be lower than its fair value over time.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.