We recently compiled a list of 8 Most Profitable Industrial Stocks to Invest In. In this article, we will look at where FedEx Corporation (NYSE:FDX) ranks among the most profitable industrial stocks.
Total US industrial net absorption in H1 2024 came in at 67.1 million square feet, reflecting a significant decline from the historic peak in absorption in 2021, when it was 749.3 million square feet for the year, as per historical data provided by CoStar. However, amidst the uncertainty regarding the economic outlook for H2 2024, the current NAIOP Industrial Space Demand Forecast expects that the national industrial real estate market should continue the trend of positive net absorption.
As per NAIOP, the Commercial Real Estate Development Association, total net absorption for H2 2024 is expected to be ~114 million square feet. The full-year absorption in 2025 is expected to be ~249 million square feet, and absorption in the first half of 2026 is forecast to be ~154 million square feet. With the expectation of lower rates moving forward, the potential for increased industrial leasing activity in H2 2024 and onward remains significant. With interest rates trending lower, businesses are expected to reaccelerate their capex plans that have slowed since 2022’s increase in rates.
Deal Activity in The Industrials and Services (I&S) Sector
PwC reported that the industrials and services (I&S) sector should see a steady pace of deal activity moving forward. Despite the market challenges, such as elevated interest rates and regulatory concerns, both buyers and sellers are resorting to the M&A market in a bid to drive further growth and value creation. As per PwC, in the current environment, companies continue to evaluate portfolio performance to determine whether or not they should divest non-core assets to finance strategic and corporate investments.
Deal activity in Aerospace & Defence should accelerate in H2 2024 and 2025. M&A is expected to focus on small to midsize acquisitions instead of larger deals, with companies seeking to address strategic and labour talent gaps and secure supply chains and production capacity via vertical integration. The commercial aerospace sector should continue to grow in H2 2024. PwC expects continued activity in the aircraft aftermarket segment, courtesy of aging military and commercial fleets.
Next, deal activity in the industrial manufacturing sector should accelerate in the near to medium term. This is expected to be driven by increased investor optimism about the industry and stability in the broader macroeconomic environment. Decarbonization and other environmental considerations are expected to remain the focus areas. PwC mentioned that there is a strong interest in manufacturing processes pivoting from metals to more sustainable raw materials.
For Industrial Decarbonization, International Cooperation Is a Must
As per the World Resources Institute, the industrial sector makes up for more than a quarter of total global GHG emissions, with cement and steel production making up for most of the part. In the US, the federal government announced a $6.3 billion investment, which is focused on low-emission industrial demonstration projects. The selection has been done across industrial subsectors, such as decarbonizing cement and steel plants. Also, the European Council signed off on new regulations in a bid to reduce emissions and accelerate efficiencies in industry.
World Resources Institute believes that international collaboration remains a key in achieving climate goals in heavy industries. This is because industrial products are traded throughout borders to cater to global value chains. Shared innovation and learning remain important when it comes to accelerating the deployment of decarbonization technologies.
Our Methodology
To list the 8 Most Profitable Industrial Stocks to Invest In, we used a Finviz screener to screen for stocks from the industrial sector. After getting the list of 30-40 stocks, we narrowed our list by choosing the ones having positive net income on a TTM basis and a 5-year net income CAGR. Finally, the following 8 most profitable industrial stocks were ranked in ascending order of their hedge fund sentiments, 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).
FedEx Corporation (NYSE:FDX)
Net Income on TTM Basis: $4.047 billion
5-Year Net Income CAGR: 55.16%
Number of Hedge Fund Holders: 59
FedEx Corporation (NYSE:FDX) offers transportation, e-commerce, and business services in the US and internationally.
Wall Street analysts are quite optimistic about the company’s DRIVE program, which is a comprehensive cost-reduction initiative. FedEx Corporation (NYSE:FDX) has been undertaking numerous significant strategic moves, which are focused on streamlining its operations and enhancing shareholder value. For example, the merger of its Express and Ground network operations in the US, which forms part of its Network 2.0 strategy, should improve margins and capital efficiency.
Wall Street believes that e-commerce remains the significant growth driver for FedEx Corporation (NYSE:FDX). Notably, the recent trends provide unexpected support, primarily from Chinese outbound volumes. The merger of Express and Ground operations is expected to unlock opportunities to optimize route planning, reduce redundancies, and improve asset utilization. This consolidation is expected to result in more flexible and responsive service offerings. Therefore, it should enable FedEx Corporation (NYSE:FDX) to better compete in the evolving e-commerce landscape and capture the market share.
The company’s innovative approach to network optimization, diversified service offerings throughout multiple segments, robust global brand recognition, and extensive network should act as competitive advantages.
Citigroup initiated the coverage on the shares of FedEx Corporation (NYSE:FDX), issuing a “Buy” rating and a $301.00 price objective. Longleaf Partners, managed by Southeastern Asset Management, released its second quarter 2024 investor letter. Here is what the fund said:
“FedEx Corporation (NYSE:FDX) – Global logistics company FedEx was the top contributor for the quarter. Late in the quarter, FedEx reported strong fiscal year results, highlighting a year of strong cost management in a challenging revenue environment. Earnings per share (EPS) increased by 19%, and reduced capital expenditures narrowed the gap between EPS and FCF per share. With the increase in FCF, the company has become a significant share repurchaser, which is a welcome change. The company also announced a strategic review of their Freight segment. Our appraisal has long accounted for the underappreciated value in FedEx’s less-than-truckload operations. A potential spin-off or sale could unlock substantial value, as comparable companies like Old Dominion trade at significantly higher multiples on revenue, cash flow, and earnings than those applied to FedEx Freight by the market and our appraisal today.”
Overall FDX ranks 2nd on our list of the most profitable industrial stocks to invest in. While we acknowledge the potential of FDX 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 FDX 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 was originally published on Insider Monkey.
