"Trough" - Industrials Review
If you are doing value investing correctly, “trough” is a word you should be hearing often. This is especially true when investing in industrial stocks.
You should be trying to invest in companies whose earnings are in a “trough”.
From the Cambridge Dictionary - “trough” - a low point in a regular series of high and low points
Industrials are a tricky group. They are only 8% of the S&P 500, but 18% of the mid-cap value index. My Top 20 model is 10% in industrials, but I am leaning toward more.
My two favorites:
Middleby - MIDD - $134 - restaurant equipment, processing equipment for bakery and poultry, high-end residential grills and cooking equipment
Titan International - TWI - $6 - rims and tires for large farm tractors and construction equipment, rims and tires for lawn equipment and ATV’s
Both MIDD and TWI reported slightly below expectations quarters, but both said conditions were reaching a “trough”. MIDD reports that residential cooking equipment is still only 70% of pre-pandemic, and restaurant expansions have been delayed. MIDD thinks margins can still rise from the low 20’s to near 30%. Select Equity and Victory Capital adding to positions. TWI reports inventory de-stocking at dealers is coming to an end. Farm incomes are reaching a trough. Despite very tough industry conditions TWI is still buying stock back at 80% of book, and making appearances at 5 investor conferences.
RXO is a stock I want to add, but I am waiting for the quarter and the election. In their last call RXO reported trough margins, still 30% below the 5 year average.
The group below is a mixture of interesting “stories” and companies that can only succeed if GDP grows 4%+:
RXO - RXO Corp. - $28 - truck brokerage, potential home run
CNM - Core & Main - $44 - distributor of municipal water pipes, created by Satan (private equity), infrastructure play, Select Equity is big owner
LQDT - Liquidity Services - $22 - selling surplus equipment, interesting business model, been watching for 10 years, still undecided
WNC - Wabash National - $18 - truck trailers, great trailers, where is the cycle?
ERII - Energy Recovery - $18 - desalinization equipment, but now commercial refrigeration ???
HI - Hillenbrand - $28 - misc. industrial, no more caskets and hospital beds, huge restructuring now done???
AIN - Albany International - $70 - paper making equipment, is paper obsolete?
DRVN - Driven Brands - $15 - auto repair and car washes, franchisee quality??
BWMN - Bowman Consulting - $22 - civil engineering roll-up, a little too promotional???
LNN - Lindsay Mfg. - $119 - irrigation equipment, ag cycle issues
GRC - Gorman-Rupp - $38 - large industrial valves, boring, made big acquisition
ASTE - Astec Ind. - $32 - road making equipment, only strong in South
CMCO - Columbus McKinnon - $31 - winches, boring
GTES - Gates Industrial - $20 - belts and hoses, really boring
TRN - Trinity - rail cars and leasing - $33 - hate, hate, hate, the leasing business
TNC - Tennant - $83 - cleaning equipment, extra boring
HSII - Heidrick & Struggles - $40 - high level corporate recruiting, smart guys
SWK - Stanley Black & Decker - $95 - toolS, balance sheet??
J - Jacobs Solutions - $140 - engineering, smart guys, finished spinoff
CP - Canadian Pacific - $78 - railroad/real estate, Ackman owns again
ALK - Alaska Air - $47 - airline, the only airline I trust, young fleet
CNH - $11, AGCO - $98, DE - $402 - farm equipment, when will the cycle turn