Historically, the material sector closely follows the economic cycle, classifying material companies as cyclical stocks. They typically shine during periods of economic expansion, making them attractive investments for those seeking to capitalize on economic growth. With the current focus on infrastructure development, material stocks are poised to capitalize on the rising demand for metals and raw materials.
Given this backdrop, it could be wise to consider investing in companies that are tapping into infrastructure spending, like Southern Copper Corporation (SCCO), ESAB Corporation (ESAB), and Gibraltar Industries, Inc. (ROCK).
The Bipartisan Infrastructure Law (BIL), signed into effect by the Biden-Harris administration, allocates $1.2 trillion in spending, including $550 billion in new federal investments over the next five years. This massive investment is set to boost the materials industry, which is projected to grow at a CAGR of 1.1% by 2029.
With government funding supporting large-scale infrastructure projects, ranging from road and bridge repairs to airport and public building construction), the demand for materials is set to surge. As a result, companies with exposure in this space are poised to keep reaping the benefits of sustained federal investment, leading to promising revenue and earnings growth.
Considering these factors, let’s evaluate the three Industrial – Metals picks, beginning with the third choice.
Stock #3: ESAB Corporation (ESAB)
ESAB is involved in the fabrication and gas control technology. It provides advanced equipment, consumables, gas control equipment, robotics, and digital solutions, which are used in cutting, joining, and automated welding.Â
On June 4, 2024, ESAB announced a distribution agreement with INFRA Group, a leading Mexican provider of industrial and medical gases. The partnership aims to expand the availability of ESAB’s differentiated solutions by offering its welding and gas control equipment to customers in Mexico, potentially boosting the company’s growth in the region.
On May 30, ESAB announced the acquisition of Linde Industries Private Limited, a market leader in welding consumables and equipment in Bangladesh. This marks ESAB’s third acquisition this year, aligning with its strategy to accelerate growth. With Bangladesh being a rapidly expanding market, this acquisition is expected to strengthen the company’s ability to serve its regional end markets and customers.
In terms of the trailing-12-month EBIT margin, ESAB’s 16.71% is 67.1% higher than the 10% industry average. Similarly, its 11.51% trailing-12-month levered FCF margin is 75.9% higher than the industry average of 6.54%. Also, its trailing-12-month ROTC of 10.10% compares to the industry average of 7.14%.
For the second quarter of 2024, which ended on June 28, ESAB’s gross profit increased 2.4% year-over-year to $270.32 million, while its operating income increased 9.9% year-over-year to $119.36 million.
The company’s adjusted net income from continuing operations for the quarter amounted to $86.60 million or $1.41 per share, representing an increase of 10.9% and 10.2%, respectively, from the same period last year. Also, the company’s non-GAAP free cash flow grew 34.5% from the year-ago value to $78.80 million.
Building on this quarter’s momentum and successful acquisition, the company updated its outlook for 2024. ESAB anticipates that the full-year adjusted EBITDA will range between $495 million and $515 million. It also forecasts adjusted EPS in the range of $4.75 to $4.95.
Analysts expect ESAB’s EPS for the third quarter (ending September 2024) to grow 5.3% year-over-year to $1.14, while its revenue for the same period is expected to amount to $623.42 million. Moreover, the stock has topped the EPS estimates in all four trailing quarters.
Over the past year, the stock has surged 49.4%, closing the last trading session at $103.08.
ESAB’s POWR Ratings reflect this robust outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
ESAB has a B grade for Stability. It is ranked #9 out of 27 stocks in the Industrial – Metals industry. Click here to see the additional ratings for ESAB (Growth, Value, Momentum, Sentiment, and Quality).
Stock #2: Southern Copper Corporation (SCCO)
SCCO is an integrated producer of copper and valuable by-products. It operates the mining, exploring, smelting, and refining facilities in Peru, Mexico, Argentina, Chile, and Ecuador. Its operating segments include Peruvian operations; Mexican open-pit operations; and Mexican underground mining operations.
On August 26, backed by its strong financials, the company paid its shareholders a quarterly dividend of $0.60 per share and a stock dividend of 0.0056 shares per share of common stock. SCCO pays an annual dividend of $2.39, which translates to a yield of 2.26% at the prevailing price levels. Its four-year average dividend yield is 4.56%. The company’s dividend payments have grown at a CAGR of 8.5% over the past five years.
The stock’s trailing-12-month EBITDA margin of 52.99% is 218% higher than the industry average of 16.66%. Similarly, its 26.15% trailing-12-month net income margin is 430.3% above the industry average of 4.93%. Also, its trailing-12-month ROTA of 15.47% compares favorably to the industry average of 2.34%.
SCCO’s sales for the second quarter (ended June 30, 2024) increased 35.5% year-over-year to $3.12 billion. The company reported an operating income of $1.61 billion, indicating a 78.5% growth from the prior-year quarter. SCCO’s adjusted EBITDA came in at $1.80 billion, up 61.1% year-over-year, while its net income per share grew 73.2% from the prior-year quarter to $1.23.
The consensus revenue estimate of $2.94 billion for the fiscal third quarter (ending September 2024) represents a 17.4% increase year-over-year. The consensus EPS estimate of $1.12 for the current quarter indicates a 41.6% improvement year-over-year. The company has an impressive surprise history; it surpassed the consensus EPS and revenue estimates in three of the trailing four quarters.
SCCO shares have surged 44.5% over the past nine months to close the last trading session at $105.56.
SCCO’s bright prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
It also has an A grade for Quality and a B for Stability. Within the same industry, it is ranked #6 out of 27 stocks. Click here to see SCCO’s ratings for Growth, Value, Momentum, and Sentiment.
Stock #1: Gibraltar Industries, Inc. (ROCK)
ROCK manufactures and provides products and services for the renewable energy, residential, agtech, and infrastructure markets. It operates through four segments: Renewables; Residential; Agtech; and Infrastructure.
ROCK’s trailing-12-month net income and levered FCF margins of 8.49% and 11.49% are 38.6% and 75.5% higher than their respective industry averages of 6.12% and 6.54%. Likewise, its 8.41% trailing-12-month ROTA exceeds the 4.92% industry average by 71.1%.
In the fiscal second quarter that ended on June 30, 2024, ROCK’s net sales amounted to $353 million, while its sales from renewables and infrastructure segment grew 2.5% from the prior year’s quarter to $79.40 million and $24.8 million, respectively. The company’s adjusted net income came in at $36.40 million, up 2.8% year-over-year, and its adjusted EPS rose 2.6% from the year-ago value to $1.18.
The company has updated its fiscal year 2024 outlook, projecting consolidated net sales between $1.38 billion and $1.42 billion, compared to $1.38 billion in 2023. Additionally, its adjusted EPS guidance remains unchanged, ranging from $4.57 to $4.82, versus $4.09 last year.
Street expects ROCK’s revenue for the fiscal third quarter (ending September 2024) to increase marginally year-over-year to $395.47 million. Its EPS for the same period is expected to register a 6% growth from the prior year, settling at $1.46. In addition, it surpassed the consensus EPS estimates in three of the trailing four quarters, which is promising.
However, the stock has lost marginally over the past nine months to close the last trading session at $68.82.
It’s no surprise that ROCK has an overall rating of B, equating to a Buy in our POWR Ratings system. It has a B grade for Momentum and Quality. Out of 27 stocks in the Industrial – Metals industry, ROCK is ranked #4.
Beyond what is stated above, we’ve also rated ROCK for Growth, Value, Stability, and Sentiment. Get all ROCK ratings here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
SCCO shares were trading at $105.50 per share on Tuesday afternoon, down $0.06 (-0.06%). Year-to-date, SCCO has gained 24.56%, versus a 18.74% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta’s profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions. More…