Given positive trends in U.S. and global manufacturing activity, industrial production, and construction, there may well be opportunities for investors within the industrial sector. The CAPS Community Stock Screener provides an efficient means of narrowing down your choices, once you decide upon a portfolio strategy. Incorporating the following parameters into the screener…
- A revenue growth rate (average last three years) of at least 10%.
- A long-term debt-to-equity ratio of 1.0 or below.
- EPS growth (three-year average) at least 10%.
- Current ratio (current assets/current liabilities) of at least 2.0.
- P/E Ratio (trailing-12 months) of between 10.0 and 20.0.
| Symbol | Company Name | Rev. Growth Rate (last 3 Yrs)% | LT Debt-to-Equity Ratio | EPS Growth Rate (last 3 Yrs)% | Price-to-Earnings (TTM) | Current Ratio |
|---|---|---|---|---|---|---|
| KMT | Kennametal | 11.45 | 0.39 | 61.14 | 17.3 | 3.2 |
| LECO | Lincoln Electric | 12.82 | 0 | 34.18 | 19.5 | 2.5 |
| RS | Reliance Steel and Aluminum | 12.37 | 0.6 | 18.87 | 15.6 | 3.8 |
| VMI | Valmont Industries | 19.81 | 0.33 | 37.3 | 12.8 | 3.6 |
Well-situated and diversified
Kennametal Inc. (NYSE:KMT) has two operating segments, industrial and infrastructure. The former unit generates about 60% of total revenue, while the latter produces roughly 40%. Industrial caters to the aerospace, defense, transportation, and general engineering markets, as well as machine tools. Infrastructure focuses on customers that support oil and gas, power, and process operations such as food and beverage, chemicals, mining, highway construction, and road maintenance.
Kennametal Inc. (NYSE:KMT) stands out among this group in terms of its three-year earnings-per-share growth rate. Indeed, EPS gains averaged 61.1% between fiscal 2010 and fiscal 2012 (years end in June), culminating in a $3.77 a share showing in 2012.
After a downturn in fiscal 2013 due to slower spending in numerous key end markets, Kennametal Inc. (NYSE:KMT) looks poised for a recovery going forward. With rising industrial production as a catalyst, it could be on tap for a 15% to 20% upturn in EPS this fiscal year. Profit growth is apt to double global increases in that metric.
The company believes it can achieve this rebound thanks partly to internal initiatives. I surmise this means acquisitions, given its liquid balance sheet and history of buyouts. To investors’ likely delight, Kennametal Inc. (NYSE:KMT) is also putting its strong cash position to use with an aggressive share-buyback program.
All told, at a P/E (trailing-12 months) of 17.3, these shares are attractive for year-ahead price performance and may be a good long-term holding, too, based on the company’s healthy balance sheet.
Taking the right steps
Lincoln Electric Holdings, Inc. (NASDAQ:LECO) produces welding, cutting and brazing items. Its customers include metal fabricators and power-generation companies, as well as entities from numerous manufacturing sectors, such as steel, shipbuilding, heavy equipment, shipbuilding, automotive, pipelines, and oil and gas. It derives 59% of sales from North America, 15% from Europe, 10% from Asia Pacific, 6% from South America, and another 10% from “The Harris Products Group,” a combination of all non-welding businesses.
A focus on new product introductions, along with other margin-enhancement measures, is likely to bolster income comparisons this year. Certainly, Lincoln Electric Holdings, Inc. (NASDAQ:LECO) should achieve a better-than-10% share-net increase again this year. Over the past three years, those increases have averaged 34% annually.
This is another company that boasts a stellar balance sheet, with no debt and a strong current ratio of 2.5. Management is investing in a facility in Brazil, along with an enterprise resource planning (ERP) system, and new sales-force tools. Additionally, the board has authorized the repurchase of about 20% of shares outstanding, and has edged up the dividend.
I believe Lincoln Electric Holdings, Inc. (NASDAQ:LECO) shares will climb more than the market average, particularly over the long run, or when its customers’ cyclical markets take a turn for the better. The company’s belief in its own capabilities, as seen by its investments in its own stock, adds enticement. Plus, its historical performance is indicative of a company with solid potential going forward. The P/E (trailing-12 months) is 19.5.
