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3 Industrial Giants Driving Gains

The industrial sector is poised for significant expansion due to increased demand stemming from infrastructure development, domestic manufacturing initiatives, and the adoption of advanced technologies. Therefore, investing in industrial giants like Owens Corning (OC), Smurfit Kappa Group (SMFKY), and Watts Water Technologies (WTS) could help capitalize on the sector’s growth prospects. Keep reading…

The industrial sector's prospects appear promising due to the increasing demand for goods and services, the shift to smart factories with advanced technologies like robotics and IoT, and government initiatives that boost domestic manufacturing and infrastructure investment.

With several factors contributing to a positive outlook for the sector, it may be wise to consider investing in quality industrial stocks Owens Corning (OC), Smurfit Kappa Group Plc (SMFKY), and Watts Water Technologies, Inc. (WTS) for solid gains.

The industrial sector is experiencing a digital transformation in the era of Industry 4.0, leading to increased productivity and efficiency. The global Industry 4.0 market is projected to reach $482 billion by 2032, registering a CAGR of 20.7%.

Similarly, the growing demand for commercial and residential spaces, coupled with adopting sustainable building practices, drives the demand for building materials and industrial services. The global building materials market is projected to grow at a 3.9% CAGR, reaching $1.70 trillion by 2031. The global industrial services market is expected to grow at a CAGR of 5.7%, reaching $44.05 billion trillion in 2028.

Moreover, the packaging industry is experiencing significant growth driven by increasing demands in e-commerce, healthcare, and textiles, with a focus on sustainable packaging. The global industrial packaging market is projected to grow to $68.93 billion by 2031, registering a CAGR of 4.3%.

Let’s assess why the three featured stocks are worth investing in now.

Owens Corning (OC)

OC manufactures and sells insulation, roofing, and fiberglass composite materials in the United States, Canada, Europe, Asia Pacific, Latin America, and internationally. It operates in three segments: Composites, Insulation, and Roofing.

On February 9, 2024, OC announced the acquisition of Masonite for $3.90 billion. The company aims to strengthen its position in the building and construction materials market and create a scalable growth platform.

OC’s Board Chair and Chief Executive Officer, Brian Chambers, predicts accelerated long-term enterprise growth with meaningful synergies and increased cash flow generation due to the acquisition of Masonite, noting Masonite's market leadership and complementarity with OC’s product offerings.

In terms of the trailing-12-month EBITDA margin, OC’s 22.28% is 63.2% higher than the 13.65% industry average. Likewise, its 12.36% trailing-12-month net income margin is 108.6% higher than the 5.92% industry average. Furthermore, its 10.10% trailing-12-month levered FCF margin is 54.2% higher than the 6.55% industry average.

OC’s net sales for the fourth quarter ended December 31, 2023, increased marginally year-over-year to $2.30 billion. The company’s adjusted earnings rose 22.1% year-over-year to $287 million. Its adjusted EPS attributable to OC common stockholders came in at $3.21, representing an increase of 28.9% year-over-year. Additionally, its adjusted EBITDA increased 12.6% year-over-year to $518 million.

For the quarter ending March 31, 2024, OC’s EPS is expected to increase 10.5% year-over-year to $3.06. Its revenue for the quarter ending September 30, 2024, is expected to increase marginally year-over-year to $2.49 billion. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 78.8% to close the last trading session at $164.15.

OC’s strong fundamentals are reflected in its POWR Ratings. Its overall rating is A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks using 118 different factors, each with its own weighting.

It has an A grade for Momentum and a B for Value, Sentiment, and Quality. Within the A-rated Industrial - Building Materials industry, it is ranked #4 out of 46 stocks. To see OC’s Growth and Stability ratings, click here.

Smurfit Kappa Group Plc (SMFKY)

Headquartered in Dublin, Ireland, SMFKY manufactures, distributes, and sells containerboard, corrugated containers, and other paper-based packaging products in the Americas and Europe. The company offers e-commerce, retail, consumer, industrial, bottle, protective, heavy-duty, hexacomb, and various punnet packaging products.

In terms of the trailing-12-month EBIT margin, SMFKY’s 12.28% is 11.7% higher than the 10.99% industry average. Likewise, its 33.60% trailing-12-month gross profit margin is 18% higher than the 28.48% industry average. Furthermore, the stock’s 0.90x trailing-12-month asset turnover ratio is 30.3% higher than the 0.69x industry average.

SMFKY's revenue for the fiscal year ended December 31, 2023, was €11.27 billion ($12.22 billion). The company's EBITDA stood at €2.08 billion ($2.25 billion), and its operating profit before exceptional items was €1.40 billion ($1.52 billion).

Additionally, its free cash flow was €628 million ($680.80 million), up 15.2% over the prior-year quarter. As of December 31, 2023, its cash and cash equivalents stood at €890 million ($964.83 million), compared to €771 million ($835.83 million) as of December 31, 2022.

Analysts expect SMFKY’s EPS for fiscal 2024 to increase 5.6% year-over-year to $3.93. Its revenue for fiscal 2025 is expected to increase 4.3% year-over-year to $12.54 billion. Over the past nine months, the stock has gained 40% to close the last trading session at $46.24.

Unsurprisingly, SMFKY has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. It has an A grade for Stability and a B for Momentum and Quality. Within the B-rated Industrial - Packaging industry, it is ranked #2 out of 20 stocks. 

Beyond what we stated above, we also have given SMFKY grades for Growth, Value, and Sentiment. Get all SMFKY ratings here.

Watts Water Technologies, Inc. (WTS)

WTS and its subsidiaries supply products and solutions that manage and conserve the flow of fluids and energy into, through, and out of buildings in the commercial, industrial, and residential markets in the Americas, Europe, the Asia-Pacific, the Middle East, and Africa.

On January 2, 2024, WTS announced the completion of its acquisition of Josam Company, a leading provider of drainage and plumbing products with annual sales of approximately $35 million.

WTS' CEO Robert J. Pagano Jr. expressed excitement about welcoming the Josam team, foreseeing increased growth and cross-selling opportunities due to the acquisition.

In terms of the trailing-12-month Return on Total Assets, WTS’ 11.35% is 134.4% higher than the 4.84% industry average. Likewise, its 18.63% trailing-12-month Return on Common Equity is 52.5% higher than the 12.22% industry average. Additionally, its 13.43% trailing-12-month Return on Total Capital is 92.3% higher than the 6.99% industry average.

For the fourth quarter, which ended December 31, 2023, WTS’ net sales amounted to $547.50 million, up 9.1% year-over-year. Its adjusted operating income rose 20.7% over the prior-year quarter to $86.40 million. Moreover, the company’s adjusted income increased by 23.3% year-over-year to $66.10 million, and its adjusted income per share came in at $1.97, up 23.1% year-over-year.

Street expects WTS’ EPS and revenue for the quarter ending March 31, 2024, to increase 9.3% and 16% year-over-year to $2.10 and $546.94 million, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 29.9% to close the last trading session at $208.29.

WTS’ positive outlook is reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.

It has a B grade for Momentum, Stability, and Quality. It is ranked #5 out of 33 stocks in the B-rated Industrial - Manufacturing industry. To access WTS’ rating for Growth, Value, and Sentiment, click here.

What To Do Next?

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OC shares were trading at $164.15 per share on Wednesday morning, down $1.30 (-0.79%). Year-to-date, OC has gained 11.65%, versus a 10.05% rise in the benchmark S&P 500 index during the same period.

About the Author: Abhishek Bhuyan

Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.


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