Despite economic and geopolitical uncertainties, the industrial sector remained robust due to steady demand. So, quality value-driven industrial stocks Caterpillar Inc. (CAT), Komatsu Ltd. (KMTUY), and Sumitomo Heavy Industries, Ltd. (SOHVY) could be wise investments.
Industrial production increased by 0.5% in April 2023. Moreover, the Industrial Production Index came in at 103 in the United States, and a value of over 100 shows positive production performance.
In addition, AI in industrial machinery is expected to grow at a 25% CAGR until 2032. The rise of complex data and the emergence of Industry 4.0 are pushing the growth of AI in the industrial machinery market. In addition, boosting efficiency and adopting current manufacturing technology in expanding markets necessitates a large increase in product creation capabilities.
Furthermore, the global industrial machinery market is expected to grow at a 3.6% CAGR until 2028. Investors’ interest in industrial stocks is evident from the Industrial Select Sector SPDR ETF’s (XLI) 3.4% gains over the past six months.
Let us look deeper into the fundamentals of the featured stocks.
Caterpillar Inc. (CAT)
CAT manufactures construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives. The company operates through three segments: Construction Industries; Resource Industries; and Energy & Transportation.
CAT’s forward EV/EBIT multiple of 13.11 is 12.9% lower than the industry average of 15.06. Its forward non-GAAP P/E multiple of 13.19 is 21.9% lower than the industry average of 16.89.
CAT’s trailing-12-month net income margin of 11.53% is 81.6% higher than the industry average of 6.35%. Its trailing-12-month ROCE of 40.39% is 189.7% higher than the industry average of 13.94%.
CAT’s total sales and revenues increased 16.7% year-over-year to $15.86 billion in the first quarter that ended March 31, 2023. Also, its operating profit increased 47.2% from the year-ago value to $2.73 billion.
The company’s profit and adjusted EPS increased 26.4% and 70.5% from the prior-year quarter to $1.94 billion and $4.91, respectively.
The consensus revenue estimate of $65.24 billion for the year ending December 2023 represents a 9.8% increase year-over-year. Its EPS is expected to grow 28.8% year-over-year to $17.82 for the same period. It surpassed EPS estimates in all four trailing quarters. MAR’s shares have gained 24% over the past nine months to close the last trading session at $235.03.
CAT’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.
CAT has a B for Growth, Value, and Momentum. It is ranked #13 out of 80 stocks in the A-rated Industrial - Machinery industry. Click here for the additional POWR Ratings for Quality, Stability, and Sentiment for CAT.
Komatsu Ltd. (KMTUY)
Headquartered in Tokyo, Japan, KMTUY manufactures and sells construction, mining, and utility equipment and forest and industrial machinery worldwide. The company operates through three segments: Construction, Mining, and Utility Equipment; Retail Finance; and Industrial Machinery and Others.
KMTUY’s forward EV/EBIT multiple of 8.83 is 41.4% lower than the industry average of 15.06. Its forward EV/EBITDA multiple of 6.74 is 37.6% lower than the industry average of 10.80.
KMTUY’s trailing-12-month net income margin and EBITDA margins of 9.21% and 18.07% are 45.1% and 36.6% higher than the industry averages of 6.35% and 13.23%, respectively.
For the third quarter that ended December 31, 2022, KMTUY’s net sales increased 26% year-over-year to ¥2.54 trillion ($18.24 billion). Also, its operating income increased 54.9% from the year-ago value to ¥346.60 billion ($2.49 million).
The company’s net income amounted to ¥231.91 billion ($1.67 million) and ¥245.26 per share, representing an increase of 49.1% and 49.1% from the prior-year period, respectively.
Street expects KMTUY’s revenue to increase 199.2% year-over-year to $25.14 billion for the year ending March 2024. Its EPS is expected to increase 3.6% year-over-year to $2.57 for the same period. Over the past nine months, the stock has gained 25.3% to close the last trading session at $25.67.
It’s no surprise that KMTUY has an overall A rating, equating to a Strong Buy in our POWR Ratings system. It has an A grade for Value and a B grade for Momentum and Stability. It is ranked #7 in the same industry.
Beyond what is stated above, we’ve also rated KMTUY for Growth, Sentiment, and Quality. Get all KMTUY ratings here.
Sumitomo Heavy Industries, Ltd. (SOHVY)
Headquartered in Tokyo, Japan, SOHVY manufactures and sells general machinery, advanced precision machinery, construction machinery, ships, and environmental plant facilities in Japan and internationally. The company operates through four segments: Mechatronics; Industrial Machinery; Logistics & Construction; and Energy & Lifelines.
SOHVY’s forward EV/Sales multiple of 0.48 is 71.9% lower than the industry average of 1.69. Its forward Price/Sales multiple of 0.40 is 70.2% lower than the industry average of 1.33.
SOHVY’s trailing-12-month CAPEX/Sales of 4.62% is 61.5% higher than the industry average of 2.86%. Its trailing-12-month asset turnover ratio of 0.97 is 21.1% higher than the industry average of 0.80.
In the first quarter that ended March 31, 2023, SOHVY’s operating income increased 9.3% year-over-year to ¥16.16 billion ($116.13 million). Also, its net income increased 4.8% from the year-ago value to ¥10.81 billion ($77.69 million). The company’s EPS came in at ¥88.24, representing an increase of 4.8% from the prior-year period.
Analysts expect SOHVY’s revenue to increase 14.6% year-over-year to $7.40 billion for the year ending December 2023. The stock has gained 7.2% over the past year to close the last trading session at $5.65.
SOHVY’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 #15 in the same industry. It has a B for Growth, Value, Momentum, and Stability. To see additional SOHVY’s ratings for Sentiment, and Quality, click here.
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CAT shares were trading at $236.11 per share on Monday afternoon, up $1.08 (+0.46%). Year-to-date, CAT has declined -0.43%, versus a 13.24% 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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