While most of the attention in the stock market this year has been directed towards the mega-cap tech stocks and artificial intelligence, there’s a significant “boring” trend underway.
One that just so happens to be contributing to one of the biggest U.S. manufacturing booms seen in decades:
Reshoring.
Manufacturers are building facilities in the U.S. at the fastest pace of the last few decades, a trend largely set in motion during the pandemic years. According to an MIT Sloan research report, a combination of supply chain bottlenecks, rising labor and transportation costs, U.S. tariffs on China and geopolitical tensions have forced companies to seriously reconsider reshoring production.
Adding to that has been a concerted legislative effort to domesticate manufacturing, including the Bipartisan Infrastructure Law, the CHIPS and Science Act and the Inflation Reduction Act.
To that end, companies are building manufacturing facilities in the U.S. at a higher rate than any other property type, according to MIT Sloan, with spending on that front increasing a whopping 62% above the five-year average in 2022.
Manufacturers of industrial machinery are some of the principal beneficiaries of both the reshoring trend and an imminent decline in interest rates in the coming months, as lower rates make it easier for manufacturers to borrow money for new equipment and technology upgrades.
What’s more, falling rates facilitate lower financing costs for manufacturers, while improving cash flow and making it easier to manage debt and raise capital for new projects.
With that said, let’s take a look at a couple of stocks that are key participants in, and providers for, the industrial machinery sector.
2 Rock-Solid Industrial Machinery Stocks
Philadelphia-based Carpenter Technology (CRS) is a global provider of specialty metals like titanium, stainless steels, tool steels, powder metals, as well as additives and metal powders and parts. The company serves numerous end markets, including industrial, consumer, defense/aerospace and medical markets. Carpenter’s products are often used for components that require high strength and durability, which are critical attributes in the industrial machinery sector.
Business has been brisk for Carpenter in recent quarters as shown by the firm’s recently released record fiscal Q4 results, which featured the completion of its most profitable year ever. To that end, a major Wall Street bank recently initiated coverage in Carpenter with a “buy” rating based on the company’s potential for “significant growth” due to its unique position in the market, which combines exposure to early-cycle original equipment manufacturing (OEM) along with the pricing power of a commercial aftermarket supplier.
Additionally, the bank said Carpenter is likely to benefit from a “mismatch” between the recent increase in OEM production rates and capacity constraints for certain specialty metals, allowing the company to maintain its pricing power while passing on higher costs to customers. In the wake of the latest financial results, the top brass pulled forward by a year its goal of reaching $500 million in adjusted operating income by 2026, while Wall Street sees earnings booming this year and next.
Hyster-Yale (HY) is a leading manufacturer of a line of industrial lift trucks, attachments and aftermarket parts that are in high demand in the ongoing reshoring boom.
A strong global economy, combined with growing demand for lift trucks worldwide, plus a 17% year-over-year increase in lift truck prices, resulted in a 90% increase in lift truck operating profit for the first quarter of 2024.
In Q2, Hyster-Yale’s earnings came in 62% ahead of the prior year’s quarter, but shares were dragged down by a weaker backlog (down 29% from a year ago) and lighter bookings (down 44% from Q2 2023).
All told, management believes that, while the bookings decline arrived faster than anticipated, it’s little more than a normalization of the prior above-trend growth and is likely to abate by early 2025.
