Despite macroeconomic concerns, the industrial metal sector is predicted to grow steadily due to increasing demand from diverse industries. Given the sector’s growth prospects, investors could consider buying fundamentally sound industrial stocks Atkore Inc. (ATKR), Valmont Industries, Inc. (VMI) and Rio Tinto Group (RIO) for solid returns.
Before diving deeper into the fundamentals of these stocks, let’s discuss what’s shaping the industrial metal landscape.
The industrial metal sector is expected to experience strong demand in the long run due to investments in infrastructure development and the shift to sustainable options. These investments in infrastructure development are driven by the growing need for modernizing transportation systems, constructing smart cities, and expanding renewable energy projects.
In September, industrial production rose by 0.3%, reaching a 2.5% annual rate in the third quarter, with manufacturing output increasing by 0.4% and the mining index rising by 0.4%.
Moreover, metal manufacturing, like other industries, is undergoing a digital transformation. Metal manufacturers benefit from increased productivity and lower costs through Artificial Intelligence (AI), the Internet of Things (IoT), and automation.
The global metal and metal manufactured products market is expected to reach $17.34 trillion by 2028, growing at a CAGR of 5.4%. Rising product utilization in the automotive and construction industries and the growing use of 3D printing technology are important factors driving the market.
Considering these conducive trends, let’s look at the fundamentals of the three Industrial - Metals stock picks, beginning with number 3.
Stock #3: Atkore Inc. (ATKR)
ATKR manufactures and sells electrical, safety, and infrastructure products in the United States and internationally.
ATKR’s forward non-GAAP P/E multiple of 7.21 is 59.4% lower than the industry average of 17.78. Its forward EV/EBIT multiple of 6.23% is 59% lower than the industry average of 15.22.
ATKR’s trailing-12-month EBIT margin of 27.33% is 178.8% higher than the 9.80% industry average. Its trailing-12-month ROCE of 59.62% is 340.4% higher than the 13.54% industry average.
ATKR’s net sale came in at $919.12 million in the third quarter that ended June 30, 2023. Its total current liabilities came in at $1.48 billion for the period that ended June 30, 2023, compared to $1.45 billion for the period that ended September 30, 2022.
Also, its total assets came in at $2.80 billion, compared to $2.60 billion for the same period.
Street expects ATKR’s revenue to increase marginally year-over-year to $3.61 billion for the year ending September 2024. Its EPS is expected to come in at $16.54 for the same period. Over the past year, the stock has gained 43.9% to close the last trading session at $131.02.
ATKR’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
ATKR also has a B grade for Value and Quality. It is ranked #9 out of 32 stocks in the Industrial - Metals industry. Click here to see the additional POWR Ratings for Growth, Sentiment, Stability, and Momentum for ATKR.
Stock #2: Valmont Industries, Inc. (VMI)
VMI produces and sells metal products internationally. The company operates through two segments: Industrial and Agricultural. It has a diverse portfolio of products ranging from pre-stressed concrete, composite, and hybrid structures for lighting, transportation, and telecommunications equipment to surface coatings to prevent corrosion of metals.
On October 17, 2023, VMI announced a strategic partnership with FieldSync, a pioneer in infrastructure data collecting and analytics technologies. This breakthrough collaboration is the first of its kind, intending to deliver innovative product solutions that accelerate digital transformation and provide customers with continued value.
VMI’s forward EV/Sales multiple of 1.31 is 20.9% lower than the industry average of 1.66. Its forward Price/Sales multiple of 1.08% is 16.9% lower than the industry average of 1.30.
VMI’s trailing-12-month ROTA of 7.64% is 51.6% higher than the 5.04% industry average. Its trailing-12-month asset turnover ratio of 1.19x is 46.6% higher than the 0.81x industry average.
For the second quarter that ended July 1, 2023, VMI’s gross profit grew 12.6% from the year-ago value to $329.40 million. Its adjusted operating income increased 12% year-over-year to $137.64 million. The company’s adjusted net earnings rose 16.4% year-over-year to $92.74 million. Also, its adjusted EPS was $4.37, compared to $3.70 in the previous year’s quarter.
The consensus revenue estimate of 4.36 billion for the year ending December 2023 represents a marginal increase year-over-year. Its EPS is expected to grow 12.8% year-over-year to $15.59 for the same period. It surpassed EPS estimates in three of four trailing quarters. VMI’s shares have lost 7.7% intraday to close the last trading session at $223.79.
VMI’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
It is ranked #7 in the same industry. It has an A grade for Momentum. To see additional VMI ratings for Sentiment, Value, Growth, Stability and Quality, click here.
Stock #1: Rio Tinto Group (RIO)
RIO, headquartered in London, the United Kingdom, engages in global exploration, mining, and processing of mineral resources. The company operates through Iron Ore; Aluminium; Copper; and Minerals segments.
RIO’s forward EV/EBIT multiple of 6.44 is 43.8% lower than the industry average of 11.47. Its forward EV/EBITDA multiple of 4.76% is 38.4% lower than the industry average of 7.72.
RIO’s trailing-12-month ROTC of 13.02% is 128.5% higher than the industry average of 5.70%. Its trailing-12-month ROTA of 8.81% is 121.9% higher than the 3.97% industry average.
During the third quarter, aluminum production increased 9% year-over-year to 828 thousand tons. In addition, copper-mined production grew 5% year-over-year to 169 thousand tons.
RIO reported consolidated sales revenue of $26.67 billion in the six months that ended June 30, 2023. The company’s underlying EBITDA and free cash flow came in at $11.73 billion and $3.77 billion, respectively. Also, profit after tax attributable to owners of RIO was $5.12 billion for the period.
Analysts expect RIO’s EPS to increase marginally year-over-year to $7.61 for the year ending December 2024. The stock has gained 14.1% over the past year to close the last trading session at $62.42.
It’s no surprise that RIO has an overall A rating, equating to a Strong Buy in our POWR Ratings system. It has a B grade for Value, Stability, Sentiment and Quality. It is ranked first in the Industrial - Metals industry.
Beyond what is stated above, we’ve also rated RIO for Growth and Momentum. Get all RIO ratings here.
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RIO shares were trading at $62.10 per share on Thursday morning, down $0.32 (-0.51%). Year-to-date, RIO has declined -7.39%, versus a 13.53% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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