雅虎香港財經 4 Construction & Mining Equipment Stocks to Escape Industry Headwinds
The Zacks Manufacturing - Construction and Mining industry faces challenges due to the ongoing contraction in manufacturing activities and a decline in orders due to low customer spending. Elevated input costs pose concerns. However, signs of easing supply-chain issues offer some respite.
Increased infrastructure investment in the United States and demand from the mining sector, driven by the energy transition trend, are expected to buoy the industry. Caterpillar Inc. CAT, Komatsu KMTUY, Hitachi Construction Machinery HTCMY and Terex TEX are poised to benefit from these trends. Their emphasis on introducing technologically advanced products, productivity and efficiency enhancements will aid growth.
Industry Description
The Zacks Manufacturing - Construction and Mining industry comprises companies that manufacture and sell construction, mining and utility equipment. They support customers using machinery in the construction of commercial, institutional and residential buildings, and infrastructure projects. Their equipment is also utilized in underground mining, drilling, mineral processing and surface mining to extract and haul copper, iron ore, coal, oil sands, aggregates, gold, and other minerals and ores. Their products are varied, including loaders, pavers, dozers, excavators, concrete mixer trucks, crushing, pulverizing and screening equipment, tractors, and cranes. Industry participants support oil and gas, power generation, marine, rail and industrial applications through their reciprocating engines, generator sets, gas turbines and turbine-related services.
Trends Shaping the Future of the Manufacturing - Construction and Mining Industry
Sluggishness in Manufacturing Activity Is Concerning: Per the Federal Reserve’s last update, industrial production was flat in April 2024. Over the 12 months ended April 2024, industrial production has been down 0.4%. A similar pattern is evident in the Institute for Supply Management’s Manufacturing Index, which has languished in the contraction territory for 16 consecutive months till February 2024. In March, the Index saw a slight uptick to 50.3%, which marked an end to the prolonged contraction. However, this recovery was not sustained and the Index fell back into contraction territory again in April with a 49.2% reading. The trend in the New Orders Index has also been choppy, reflecting lower customer spending amid inflationary trends. A brief surge in January to 52.5% sparked optimism for a rebound but was short-lived as it slipped below the 50% mark in February. In March, the Index rose to 51.4% but was followed by another drop to 49.1% in April. The Index has not delivered consistent growth since the end of its 24-month expansion streak in May 2022. Companies continue to manage outputs cautiously amid ongoing weakness in orders. The industry has also been affected by supply-chain issues, although some improvement has been noted recently. Deliveries of suppliers to manufacturing organizations were marginally faster in April for the second consecutive month. As the situation returns to normalcy, diverse end-market demand will drive the industry’s growth.
Energy Transition Trend, Construction Spending to Aid the Industry: The intensifying global focus on shifting from fossil fuels to zero emissions will require a large number of commodities, which, in turn, will support mining equipment demand in the years to come. The U.S. government's plans to increase investment in infrastructure construction, particularly in critical subsectors, such as transportation, water and sewerage, and telecommunications, should support demand in the coming years.
Higher Pricing, Cost Cuts to Boost Margins: The industry is facing input cost inflation, and transport and logistic costs. Industry players are focusing on pricing actions and efforts to improve productivity and efficiency. They are constantly implementing cost-reduction actions, which are likely to help sustain margins in this scenario. The companies are focused on streamlining their operations and realigning around high-growth key markets or customer segments to enhance their performances.
Investments in Digital Initiatives Act as a Key Catalyst: Industry participants are investing in digital initiatives like AI, cloud computing, advanced analytics and robotics. Digital transformation aids organizations in boosting productivity and increasing efficiency, reliability and safety, thereby enriching customer satisfaction. With the pressing need to cut carbon emissions, companies worldwide are relying more on autonomous machinery. Thus, players in the industry are stepping up their research and technological capabilities to bring products equipped with the latest technology into the market.
Zacks Industry Rank Indicates Weak Prospects
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates dim prospects in the near term. The Zacks Manufacturing - Construction and Mining industry, which is part of the broader Zacks Industrial Products Sector currently, carries a Zacks Industry Rank #236, which places it at the bottom 6% of 252 Zacks industries.
Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
Before we present a few stocks that you may want to consider for your portfolio, let us take a look at the industry’s recent stock-market performance and valuation picture.
Industry Versus Broader Market
The Manufacturing - Construction and Mining industry has outperformed the Zacks S&P 500 composite and its sector over the past year.
Over this period, the industry has risen 60.5% compared with the sector’s growth of 27.7%. The Zacks S&P 500 composite has moved up 26.1%.
One-Year Price Performance
Industry's Current Valuation
The forward 12-month EV/EBITDA ratio, a commonly used multiple for valuing Manufacturing, Construction and Mining companies, shows that the industry is currently trading at 10.76 compared with the S&P 500’s 12.14 and the Industrial Products sector’s forward 12-month EV/EBITDA of 18.69. The charts below show this.
Enterprise Value/EBITDA (EV/EBITDA) F12M Ratio
Enterprise Value/EBITDA (EV/EBITDA) F12M Ratio
Over the last five years, the industry traded as high as 14.83 and as low as 7.05, with a median of 10.50.
4 Manufacturing - Construction & Mining Stocks to Watch
Caterpillar: The company has delivered 13 consecutive quarters of earnings growth, fueled by cost-saving actions, strong end-market demand and pricing actions. CAT ended the first quarter of 2024 with an impressive backlog of $27.9 billion, which will support the company’s top line in the upcoming quarters. Caterpillar is anticipated to gain from strength in residential construction and non-residential construction in the United States. Its funding is focused on areas of expanding offerings and services, and digital initiatives like e-commerce, sustainability and electrification, which will drive long-term growth. The stock has gained 64.7% in the past year.
Known for its iconic yellow machines, Caterpillar is the largest global construction and mining equipment manufacturer. The Zacks Consensus Estimate for CAT’s 2024 earnings indicates year-over-year growth of 2.8%. Earnings estimates have moved up 2% over the past 30 days. Caterpillar has a trailing four-quarter earnings surprise of 14.6%, on average. CAT has an estimated long-term earnings growth rate of 8.94%. The company currently carries a Zacks Rank #3 (Hold).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price: CAT
Komatsu: The company will gain on strong demand for mining and utility equipment, which, along with higher prices, will support its revenues and segmental profits. In North America, demand is expected to remain steady in residential and non-residential construction markets, and road and traffic infrastructure. Its efforts to provide zero-emission solutions for its global customers will likely be a growth driver. Komatsu is working on expanding offerings for underground hard rock mining and introducing products that offer automation and autonomous equipment operation. The company’s shares have gained 19.8% in the past year.
Headquartered in Tokyo, Japan, Komatsu manufactures and sells construction, mining and utility equipment, and forest and industrial machinery worldwide. The Zacks Consensus Estimate for the company’s fiscal 2024 earnings has been revised upward by 0.4% over the past 30 days. KMTUY has an estimated long-term earnings growth rate of 6.1%. It currently carries a Zacks Rank #3.
Price: KMTUY
Hitachi Construction Machinery: The company recently announced that it would begin full-scale production of dump trucks in fiscal 2026, aiming to capitalize on strong demand in the market. Notably, the Americas (North, Central and South America) account for approximately 40% of the global markets for dump trucks of more than 150 tons. This aligns with one of HTCMY’s core strategies of “expanding business in the Americas” under its medium-term management plan “BUILDING THE FUTURE 2025”. HTCMY aims to achieve revenues of more than 300 billion JPY in fiscal 2025 from independent business expansion in the Americas alone. Other core strategies of the plan include delivering innovative solutions for customer needs and enhancing value chain business. The company is thus strengthening its focus on value-chain businesses other than new machinery sales, such as parts and services, rentals, used equipment and parts recycling. Plus, it is utilizing digital technologies to provide solutions at all points of contact with customers.
Shares of Hitachi Construction Machinery have gained 17.5% in the past year.
Headquartered in Tokyo, Japan, Hitachi Construction Machinery and its subsidiaries engage in the development, manufacturing, sales and service operations of hydraulic excavators, wheel loaders, road construction machines and mining machinery worldwide. The Zacks Consensus Estimate for HTCMY’s current-year earnings has been unchanged over the past 30 days and indicates year-over-year growth of 5.3%. Hitachi currently carries a Zacks Rank #3.
Price: HTCMY
Terex: Terex has been delivering year-over-year growth in earnings over the past 13 quarters, benefiting from strong demand in most end markets. The company’s continued focus on cost reduction and productivity improvement initiatives have also been aiding results. TEX’s backlog was $3.14 billion at the end of the first quarter of 2024, which remains above historical levels. This positions the company well for improved results in the coming quarters. TEX is progressing well on its “Execute, Innovate, Grow" strategy, which should drive growth. In sync with this, the company is investing in innovative products, digital innovation, the expansion of manufacturing facilities and strategic acquisitions. TEX shares have gained 26.4% over the past year.
Norwalk, CT-based Terex manufactures and sells aerial work platforms and material processing machinery worldwide. The Zacks Consensus Estimate for 2024 earnings indicates year-over-year growth of 0.4%. Earnings estimates have moved north by 2% over the past 30 days. TEX has a trailing four-quarter earnings surprise of 16.9%, on average, and an estimated long-term earnings growth rate of 11.7%. The company currently carries a Zacks Rank #3.
Price: TEX
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Caterpillar Inc. (CAT) : Free Stock Analysis Report
Terex Corporation (TEX) : Free Stock Analysis Report
Komatsu Ltd. (KMTUY) : Free Stock Analysis Report
HITACHI CONSTR (HTCMY) : Free Stock Analysis Report
