3 Peter Lynch Industrial Stocks to Consider on Low Valuations
There are many types of companies included under the industrials umbrella, including construction, industrial products (such as metal fabrication, tools, electrical parts, etc.), aerospace and defense, transportation and waste management. In short, they are the producers of the "nuts and bolts" of the industrial economy.
A key indicator that is often referred to when evaluating the health of the economy is the Federal Reserve's Industrial Production Index, which measures industrial production in the U.S. When the Covid-19 crisis began to hit the country in February, the index began to drop, losing 18% through April before beginning to bounce back. As of June, the index has gained only 7% from its March lows, indicating that industrial output is increasing more slowly that some optimists might have expected.
The result of this is that investors remain largely unenthusiastic about industrial stocks, providing potential value opportunities for investors with a longer time horizon.
One way to screen for potentially undervalued opportunities is through GuruFocus' Peter Lynch Screener. This screener was created based on some of Peter Lynch's most famously effective criteria, including a price-earnings ratio below 15, high earnings yield, high return on capital and positive per-share Ebitda growth rates.
According to the Peter Lynch Screener as of July 29, the common stocks of the following three industrial business rank highly based on Peter Lynch's investing criteria.
Huntington Ingalls Industries
Huntington Ingalls Industries Inc. (NYSE:HII), an aerospace and defense company, is the largest builder of military ships in the U.S. Based in Newport News, Virginia, the century-old company supplies 70% of the U.S. Navy's warships and employees over 42,000 people in the U.S. and around the world.
On July 29, shares of Huntington Ingalls traded around $174.87 for a market cap of $7.02 billion. The price-earnings ratio of 12 is lower than the industry median of 17.34 and the company's 10-year median of 15.78. This makes the stock undervalued according to the Peter Lynch chart.
GuruFocus gives the stock a financial strength rating of 5 out of 10 and a profitability rating of 7 out of 10. In terms of growth, the return on capital of 28.07% is higher than 77.69% of competitors, while the five-year Ebitda growth rate per share stands at 8.10%.
Snap-on
Snap-On Inc. (NYSE:SNA) is a company that designs and manufactures high-end tools for professional industries, including the automotive, aviation, aerospace, construction, agriculture and collision industries. The Kenosha, Wisconsin-based company is often considered the best in its field in terms of quality.
On July 29, shares of Snap-on traded around $144.14 for a market cap of $7.85 billion. The price-earnings ratio of 12.29 is lower than the industry median of 19.41 and the company's 10-year median of 16.68. This makes the stock undervalued according to the Peter Lynch chart.
GuruFocus gives the stock a financial strength rating of 6 out of 10 and a profitability rating of 9 out of 10. In terms of growth, the return on capital of 47% is higher than 92.72% of competitors, while the five-year Ebitda growth rate per share stands at 8.10%.
Curtiss-Wright
Based in Davidson, North Carolina, Curtiss-Wright Corp. (NYSE:CW) provides a diverse range of products for the commercial, industrial, defense and energy markets. It has a focus on complex engineered products and advanced technologies for high performance platforms and critical applications.
On July 29, shares of Curtiss-Wright traded around $91.03 for a market cap of $3.78 billion. The price-earnings ratio of 12.89 is lower than the industry median of 19.41 and the company's 10-year median of 18.92. This makes the stock undervalued according to the Peter Lynch chart.
GuruFocus gives the stock a financial strength rating of 6 out of 10 and a profitability rating of 8 out of 10. In terms of growth, the return on capital of 56.13% is higher than 94.75% of competitors, while the five-year Ebitda growth rate per share stands at 8.60%.
Disclosure: Author owns no shares in any of the stocks mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation. Investors should always conduct their own careful research and/or consult registered investment advisors before taking action in the stock market.
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This article first appeared on GuruFocus.
