Companies in the industrials sector operate in areas ranging from aerospace and defence to building products and construction. Most industrial names tend to suffer from relatively high cyclicality. Highway Holdings and Insteel Industries are industrial stocks on my list that are potentially undervalued, which means their current share prices are trading well-below what the companies are actually worth. Smart investors can make money from this discrepancy by buying these shares, because they believe the current market prices will eventually move towards their true value. And those that want more exposure to the economic cycle should consider the following list of potentially undervalued industrial stocks.
Highway Holdings Limited (NASDAQ:HIHO)
Highway Holdings Limited, through its subsidiaries, manufactures and supplies metal, plastic, electric, and electronic components, subassemblies, and finished products for original equipment manufacturers (OEM) and contract manufacturers. Established in 1990, and headed by CEO Roland Kohl, the company provides employment to 386 people and has a market cap of USD $17.49M, putting it in the small-cap group.
HIHO’s shares are currently floating at around -27% less than its true level of $6.14, at a price tag of US$4.50, based on my discounted cash flow model. This mismatch indicates a chance to invest in HIHO at a discounted price. What’s even more appeal is that HIHO’s PE ratio is trading at 16.66x compared to its Machinery peer level of, 24.97x implying that relative to its peers, you can buy HIHO’s shares at a cheaper price. HIHO also has a healthy balance sheet, with current assets covering liabilities in the near term and over the long run. HIHO also has no debt on its balance sheet, which gives it headroom to grow and financial flexibility. Dig deeper into Highway Holdings here.
Insteel Industries, Inc. (NASDAQ:IIIN)
Insteel Industries, Inc., together with its subsidiaries, manufactures and markets steel wire reinforcing products for concrete construction applications. Founded in 1953, and currently run by Howard Woltz, the company currently employs 803 people and has a market cap of USD $539.24M, putting it in the small-cap stocks category.
IIIN’s shares are currently floating at around -27% beneath its intrinsic value of $40.14, at a price tag of US$29.38, based on its expected future cash flows. The divergence signals an opportunity to buy IIIN shares at a low price. Additionally, IIIN’s PE ratio stands at around 21.34x while its Building peer level trades at, 23.47x suggesting that relative to its comparable company group, we can purchase IIIN’s shares for cheaper. IIIN is also strong in terms of its financial health, with current assets covering liabilities in the near term and over the long run. IIIN has zero debt on its books as well, meaning it has no long term debt obligations to worry about. Interested in Insteel Industries? Find out more here.
China Yuchai International Limited (NYSE:CYD)
China Yuchai International Limited, through its subsidiaries, manufactures and sells diesel and natural gas engines in the People’s Republic of China (PRC) and internationally. Established in 1951, and now run by , the company now has 9,887 employees and with the company’s market capitalisation at USD $957.45M, we can put it in the small-cap stocks category.
CYD’s stock is now hovering at around -54% lower than its intrinsic value of ¥51.45, at a price of US$23.64, based on my discounted cash flow model. The divergence signals an opportunity to buy CYD shares at a low price. In terms of relative valuation, CYD’s PE ratio is around 6.39x relative to its Machinery peer level of, 24.97x implying that relative to its competitors, we can purchase CYD’s shares for cheaper. CYD is also strong financially, as short-term assets amply cover upcoming and long-term liabilities. Finally, its debt relative to equity is 9.12%, which has been dropping over time, signalling its ability to reduce its debt obligations year on year. Dig deeper into China Yuchai International here.
For more financially sound, undervalued companies to add to your portfolio, explore this interactive list of undervalued stocks. Or create your own list by filtering companies based on fundamentals such as intrinsic discount, health score and future outlook using this free stock screener.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.