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 China Yuchai International are industrial companies that are currently trading below what they’re actually worth. There’s a few ways you can value a industrial company. The most popular methods include discounting the company’s cash flows it is expected to create in the future, or comparing its price to its peers or the value of its assets. Analysing the most recent financial data, I’ve created a list of companies that compare favourably in all criteria, making them potentially good investments.
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. Formed in 1990, and now run by Roland Kohl, the company employs 386 people and with the company’s market capitalisation at USD $18.40M, we can put it in the small-cap stocks category.
HIHO’s stock is currently floating at around -22% below its intrinsic level of $6.24, at a price tag of US$4.87, based on its expected future cash flows. This difference in price and value gives us a chance to buy low. Additionally, HIHO’s PE ratio is trading at around 18.02x relative to its Machinery peer level of, 23.24x indicating that relative to its peers, we can buy HIHO’s stock at a cheaper price today. HIHO is also a financially healthy company, as current assets can cover liabilities in the near term and over the long run. HIHO has zero debt on its books as well, meaning it has no long term debt obligations to worry about. Interested in Highway Holdings? 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 and internationally. Started in 1951, and headed by CEO , the company size now stands at 8,678 people and has a market cap of USD $862.93M, putting it in the small-cap group.
CYD’s stock is currently floating at around -41% beneath its intrinsic value of ¥35.73, at the market price of US$21.11, according to my discounted cash flow model. This mismatch indicates a potential opportunity to buy low. Additionally, CYD’s PE ratio is around 5.75x while its Machinery peer level trades at, 23.24x suggesting that relative to its comparable set of companies, you can buy CYD’s shares at a cheaper price. CYD is also strong financially, with short-term assets covering liabilities in the near future as well as in the long run. It’s debt-to-equity ratio of 14.81% has been falling for the past few years signifying CYD’s capability to reduce its debt obligations year on year. More detail on China Yuchai International here.
Johnson Controls International plc (NYSE:JCI)
Johnson Controls International plc operates as a diversified technology and multi industrial company worldwide. Established in 1885, and currently run by George Oliver, the company employs 121,000 people and with the stock’s market cap sitting at USD $33.88B, it comes under the large-cap group.
JCI’s shares are currently trading at 15% below its true value of $31.55, at a price tag of US$36.30, based on its expected future cash flows. This mismatch indicates a potential opportunity to buy low. Furthermore, JCI’s PE ratio is currently around 16.08x while its Building peer level trades at, 23.77x implying that relative to other stocks in the industry, you can buy JCI for a cheaper price. JCI is also robust in terms of financial health, with near-term assets able to cover upcoming and long-term liabilities.
Dig deeper into Johnson Controls International here.
For more financially sound, undervalued companies to add to your portfolio, explore this interactive list of undervalued stocks.
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.