We recently compiled a list of the 8 Most Undervalued Industrial Stocks to Buy According to Analysts. In this article, we are going to take a look at where Chart Industries, Inc. (NYSE:GTLS) stands against the other undervalued industrial stocks.
Despite labor shortages, supply chain disruptions, and uncertain demand, the manufacturing industry remains on the front foot. Market experts believe that the production of industrial goods— a segment consisting of aircraft, automobiles, chemicals, computers, heavy machinery, oil, and steel— is expected to see strong momentum in the near term. This broader industry is expected to be supported by the generational pivot from machine-based assembly lines to “Smart Factories.” The industry continues to focus on robotics, the Internet of Things (IoT), Augmented Reality (AR), and numerous other cutting-edge technologies.
As per MarketsandMarkets, the global Industry 5.0 should reach US$255.7 billion by 2029, demonstrating a CAGR of ~31.2 % between 2024 – 2029. The experts opine that numerous factors are expected to propel this growth, including rapid technological advancements in AI, robotics, and Industrial 3D Printing, among others. These advancements respond to the increased demand for customized products and personalized experiences and promote a human-centric approach to manufacturing, empowering workers with advanced tools and technologies.
Economic Conditions and Impact on Industrial Demand
The economy has been demonstrating mixed signals when it comes to the future of expansion. As per Newmark, consumer spending, industrial production, and inflation readings have positively exceeded anticipations in Q2 2024. However, the labor market has been cooling, with firms continuing to face the challenge of increased interest rates. According to the report released by the firm in mid-August, the container traffic at the US ports increased to the highest level in 2 years, with shippers hedging against disruption and retailers gradually stacking up inventories to reach normal levels. The company anticipates annualized growth in imports across the latter half of 2024.
Manufacturing construction spending touched new heights, coming at $121.5 billion in May 2024, approximately double the pre-COVID-19 5-year average. While The South is collecting a significant share of this investment, the manufacturing growth has been driving additive demand for industrial space. Moving forward, evolving and tech-enabled trends, along with new players in e-commerce, should continue to drive demand.
Additionally, the company believes that consumer spending has been mixing in-store, online, and omnichannel behaviors. This is because well-established retailers are investing in all such options. The report highlighted that ~42% of e-comm orders previous year involved stores, demonstrating an increase from ~27% in 2015. New e-comm entrants- mainly social media platforms monetizing audiences throughout the world- continue to join the race. At the expected ~6.7% CAGR over the upcoming few years, e-comm growth should continue to fuel industrial demand. An expected 1.2 msf of logistics space is required to help every additional $1.0 billion in e-comm sales gains.
According to the CommercialEdge market report for September, the industrial sector rebalanced in 2024 and it continues to again grow at a healthy pace after witnessing softer demand earlier. Census Bureau figures demonstrate a 1.3% rise in e-commerce sales for Q2 2024 and 6.7% YoY growth, with the segment’s share of core retail sales touching the highest level since the peak of COVID-19. The industrial space is also getting the support from growing warehouse and storage sector, which added ~25,000 jobs so far this year after declining ~8.5% between May 2022 and December 2023. Finally, expectations about Amazon increasing its lease activity hold up well for the broader industrial sector.
Our methodology
To make a list of the 8 Most Undervalued Industrial Stocks to Buy According to Analysts, we used a Finviz screener to extract stocks from the relevant industry. Next, we chose the ones that are trading lower than the forward earnings multiple of 23.52x (since the broader market trades at ~23.52x, as per WSJ). Finally, we ranked the stocks according to their potential upside, as of October 8. We also mentioned the hedge fund sentiments around each stock, as of Q2 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
An extensive industrial gas facility with many storage tanks.
Chart Industries, Inc. (NYSE:GTLS)
Forward P/E as of October 8: 9.17x
Number of Hedge Fund Holders: 47
Average Upside Potential: 53.19%
Chart Industries, Inc. (NYSE:GTLS) is engaged in designing, engineering, and manufacturing process technologies and equipment for gas and liquid molecules in the US and internationally.
In its recent earnings call, the company highlighted that it has exceeded its commercial synergy targets, and is anticipating $1 billion in synergies in Q3 2024. Chart Industries, Inc. (NYSE:GTLS) has a strong commercial pipeline throughout diverse markets, which includes data centers and energy transition. Wall Street remains optimistic about Chart Industries, Inc. (NYSE:GTLS)’s growth prospects as a result of record orders in the specialty segment, thanks to larger-scale CCUS projects and expanded applications.
The company continues to respond to potential growth opportunities in the UK, mainly in green hydrogen and industrial PCUS parks. Given the healthy sales momentum in the RSL segment, significant non-big LNG orders, and an emphasis on modular LNG solutions, Chart Industries, Inc. (NYSE:GTLS) is confident in its ability to achieve financial targets and exploit emerging market opportunities.
The Howden acquisition has been tagged as a transformational move in the company’s corporate strategy. The deal has significantly expanded Chart Industries, Inc. (NYSE:GTLS)’s operational scope, and has transformed it from a specialized equipment manufacturer to a more diversified industrial energy player. Wall Street believes that this acquisition should strengthen Chart Industries, Inc. (NYSE:GTLS)’s position in key growth markets, which include LNG, hydrogen, and various specialty sectors.
Analysts at Stifel Nicolaus reiterated a “Buy” rating, setting a $199.00 price target on 26th August. Aristotle Capital Boston, LLC, an investment advisor, released its second quarter 2024 investor letter. Here is what the fund said:
“Chart Industries, Inc. (NYSE:GTLS), an industrial equipment manufacturer that provides cryogenic equipment for storage, distribution, and other processes within the industrial gas and LNG, hydrogen, helium, carbon capture and water treatment industries was added to the portfolio. Strong forward demand for LNG and accelerating hydrogen opportunities coupled with company-specific improvement initiatives should benefit the company moving forward.”
Overall GTLS ranks 1st among the most undervalued industrial stocks to buy according to analysts. While we acknowledge the potential of GTLS as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than GTLS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
