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 CNH Industrial N.V. (NYSE:CNH) 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).
A construction team in a mining datacenter building work site with plans and equipment in hand.
CNH Industrial N.V. (NYSE:CNH)
Forward P/E as of October 8: 7.94x
Number of Hedge Fund Holders: 30
Average Upside Potential: 18.40%
CNH Industrial N.V. (NYSE:CNH) is an equipment and services company, that designs, produces, markets, sells, and finances agricultural and construction equipment.
Market experts opine that CNH Industrial N.V. (NYSE:CNH)’s brand power and technological leadership should continue to act as tailwinds for long-term growth. The company continues to focus on capitalizing on successful cost management strategies. The US Machinery & Construction industry has an overall positive outlook, which provides a supportive environment for CNH Industrial N.V. (NYSE: CNH)’s operations. Its strong position in the agricultural sector continues to establish a solid foundation for growth.
The company’s cost-out initiatives should act as a key differentiator in the current economic cycle. Its ability to effectively manage the cost structure, primarily in challenging times, should help CNH Industrial N.V. (NYSE:CNH) withstand challenging environment. Market experts believe that the company has a high-quality business, thanks to its pricing power amidst a consolidating market. CNH Industrial N.V. (NYSE:CNH)’s equipment and precision technology form a critical base for increased farm productivity and to address global food demand. The company has been executing well and continues to gain market share, which bodes well for its growth trajectory.
CNH Industrial N.V. (NYSE:CNH)’s restructuring program continued during Q2 2024 as per the plan, and it anticipates achieving a run rate reduction of 10% – 15% on total labor and non-labor SG&A expenses.
As per Wall Street, the shares of CNH Industrial N.V. (NYSE:CNH) have an average price target of $13.82. Longleaf Partners, managed by Southeastern Asset Management, released its second-quarter 2024 investor letter. Here is what the fund said:
“CNH Industrial N.V. (NYSE:CNH) – Agricultural machinery company CNH Industrial was a detractor in the quarter for two main reasons. First, the global ag equipment market went into the year depressed yet has still underperformed expectations, driven by weaker commodity prices and higher interest rates. Second, CEO Scott Wine’s departure, for personal reasons, has created a temporary management transition headwind. Despite these challenges, we remain optimistic about CNH’s long-term prospects. It is a high-quality business with pricing power in a consolidating market. Its equipment and precision technology are essential for increasing farm productivity and meeting global food demand amidst constrained land and labor inputs. CNH is executing well, gaining market share, and improving underlying margins. We also believe that the largest holder of CNH, our highly aligned partners at EXOR (which is a holding in our Global and International strategies), will continue the company along its path of FCF per share growth and increased focus on its core business. CNH is undervalued at 7 times earnings and is committed to returning 100% of FCF to shareholders through dividends and buybacks.”
Overall CNH ranks 7th among the most undervalued industrial stocks to buy according to analysts. While we acknowledge the potential of CNH 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 CNH 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.