Companies across sectors adopting new business methods to increase efficiency are resulting in increased demand for advanced equipment and solutions. This should drive growth for high-quality industrial stocks, Myers Industries, Inc. (MYE) and Keysight Technologies, Inc. (KEYS). In this piece, we will take a closer look at these stocks to understand their upside potential.
However, the lingering macroeconomic headwinds could mar the near-term performance of the industry. Considering this, we think it is best to steer clear of fundamentally weak FuelCell Energy, Inc. (FCEL) this year.
Machinery production has been increasing despite rising prices and shortages in upstream metals and materials, which suggest that demand for capital goods remains strong.
Moreover, the adoption of the fourth industrial revolution, the expanding implementation of industrial IoT, and the use of digital twins and AR technology are all likely to drive considerable growth in the industrial automation industry. The global industrial automation market is expected to grow at a 9.8% CAGR until 2029.
Investors’ interest in the industrial sector is evident from the SPDR Select Sector Fund Industrial (XLI) 10.6% returns over the past nine months.
Let’s delve deeper into these stocks mentioned above:
Stocks to Buy:
Myers Industries, Inc. (MYE)
MYE is involved in manufacturing and distribution internationally. The company operates through two segments: Material Handling and Distribution.
MYE’s forward EV/Sales of 1.11x is 26.9% lower than the industry average of 1.52x. Its forward Price/Sales of 0.98x is 17.7% lower than the industry average of 1.19x.
MYE’s trailing-12-month ROCE of 24.01% is 86.9% higher than the industry average of 12.85%. Its trailing-12-month ROTA of 9.84% is 76.6% higher than the industry average of 5.57%.
MYE’s net sales came in at $2.28 billion for the third quarter that ended September 30, 2022, up 14% year-over-year. Its adjusted EBITDA grew 57% year-over-year to $27.20 million. Its net income increased 73% year-over-year to $13.67 million. In addition, its EPS increased 68.2% year-over-year to $0.37.
Street expects MYE’s revenue to increase 7.7% year-over-year to $977.09 million in 2023. Its EPS is estimated to increase by 15.2% year-over-year to $1.9 in 2023. It surpassed EPS estimates in all four trailing quarters. Over the past year, the stock has gained 46.1% to close the last trading session at $24.43.
MYE’s strong fundamentals are reflected in its POWR Ratings. The stock’s overall A rating represents a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
MYE has a B for Growth, Stability, and Quality. In the A-rated Industrial – Manufacturing industry, it is ranked #5 out of 36 stocks. Click here for the additional POWR Ratings for Value, Sentiment, and Momentum for MYE.
Keysight Technologies, Inc. (KEYS)
KEYS provides electronic design and test solutions to companies in the Americas, Europe, and the Asia Pacific. The company also offers customization, consulting, and optimization services throughout the product development lifecycle. It operates through two segments: Communications Solutions Group (CSG); and Electronics Industrial Solutions Group (EISG).
On February 23, 2023, KEYS announced the acquisition of Cliosoft and the addition of the company’s range of hardware design data and intellectual property (IP) management software tools to its portfolio of electronic design automation (EDA) solutions. This should enhance its capabilities.
Moreover, KEYS announced the release of its new E7515R solution, which is based on its 5G Network Emulation Solutions platform, a streamlined network emulator designed specifically for protocol, radio frequency (RF), and functional testing of all cellular internet of things (CIoT) technologies, including RedCap. This should boost its portfolio.
KEYS’ trailing-12-month ROCE of 28.12% is 465.7% higher than the industry average of 4.97%. Its trailing-12-month ROTA of 13.67% is 827.5% higher than the industry average of 1.47%.
KEYS’ revenue came in at $1.38 billion for the first quarter that ended January 31, 2023, up 10.5% year-over-year. Its income from operations increased 18.8% year-over-year to $322 million. Its non-GAAP net income came in at $363 million, up 19% from the prior-year quarter. Also, its non-GAAP EPS grew 22.4% year-over-year to $2.02.
KEYS’ revenue is expected to increase 3.4% year-over-year to $5.60 billion in 2023. Its EPS is estimated to grow 5% year-over-year to $8.01 in 2023. It surpassed EPS estimates in all four trailing quarters. The stock has gained 14.8% over the past nine months to close the last trading session at $160.86.
It’s no surprise that KEYS has an overall B rating, equating to a Buy in our POWR Ratings system. It has an A grade for Quality and a B for Sentiment. It is ranked #24 out of 91 stocks in the Industrial – Equipment industry.
Beyond what is stated above, we’ve also rated KEYS for Growth, Value, Stability, and Momentum. Get all KEYS ratings here.
Stock to Avoid:
FuelCell Energy, Inc. (FCEL)
FCEL manufactures fuel cell technology platforms and offers sustainable goods and solutions. Its customers include utility companies, municipalities, universities, hospitals, government entities/military bases, and a wide range of industrial and commercial firms.
FCEL’s forward EV/Sales of 8.45x is 383.4% higher than the industry average of 1.75x. Its forward Price/Sales of 10.65x is 666.4% higher than the industry average of 1.39x.
FCEL’s trailing-12-month ROCE of negative 22% is lower than the industry average of 13.94%. Its trailing-12-month ROTA of negative 15.19% is lower than the industry average of 5.20%.
For the fiscal fourth quarter that ended October 31, 2022, FCEL’s gross loss increased 81.6% from the prior-year quarter to $15.19 million. The company reported a loss from operations of $42.67 million, which increased 89.2% year-over-year.
Its adjusted EBITDA loss came in at $36.10 million, up 113.8% year-over-year. The company’s net loss widened 73.2% year-over-year to $43.27 million.
Analysts expect FCEL’s revenue to decrease marginally year-over-year to $130.07 million in 2023. Its EPS is expected to remain negative at $0.3 in 2023. The company missed EPS estimates in each of the trailing four quarters. FCEL’s stock has lost 27.6% over the past year to close the last trading session at $3.39.
FCEL has an overall rating of F, which equates to a Strong Sell in our POWR Ratings system.
The stock has an F grade for Stability, Sentiment, and Quality and a D for Value. FCEL is ranked #84 in the same industry. For additional FCEL ratings for Growth, and Momentum, click here.
What To Do Next?
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MYE shares were unchanged in premarket trading Friday. Year-to-date, MYE has gained 9.90%, versus a 3.97% rise in the benchmark S&P 500 index during the same period.
About the Author: RashmiKumari
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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