CJT:CC - A Fresh Take on Value Investing: 3 Undervalued Industrial Stocks to Watch
2023-07-10 10:00:00 ET
The TSX’s industrial sector is doing good thus far in 2023, although the market could be wrong about three undervalued constituents. Cargojet ( TSX:CJT ) trades at a bargain, while the year-to-date gains of Magna International ( TSX:MG ) and Exchange Income Corp. ( TSX:EIF ) are surprisingly small.
The companies have strong fundamentals and visible growth potential. Value investors should watch out for these industrial stocks, because their values could multiply over time.
Stable against volatilities
Cargojet, Canada’s top cargo airline, reported strong earnings in the first quarter (Q1) of 2023 following two profitable years in 2021 and 2022. However, the $1.66 billion company faces softening industry trends, including slower economic growth due to stubborn inflation and rising interest rates.
Still, its president and chief executive officer (CEO) Dr. Ajay Virmani said, “Despite the current softer economic conditions, the long-term macro trends that drive our business remain firmly intact.” He also noted that people prioritize travel and leisure in post-pandemic with the reopening of the economy.
Dr. Virmani added that Cargojet will realign its cost structure with the current demand levels and cut all discretionary expenses. He is confident the company can ride out the volatile economic environment and resume growth as the economic cycle turns the corner.
The current share price of $96.75 (-16.39% year to date) is a good entry point. CJT also pays a modest 1.18% dividend.
Deep product expertise
Magna International outperforms the broader market year to date (at +3.32% versus +2.3%), and enormous gains are on the horizon. At $77.75 per share, you can partake of the 3.2% dividend while awaiting the breakout.
The $22.1 billion auto parts company is tops in vehicle engineering and manufacturing, including deep product expertise. Its products cover body interiors & structures, power & vision, and seating systems.
Management sees tremendous opportunities for its integrated systems solutions in a transforming automotive industry. In Q1 2023, total sales increased 11% to US$10.7 billion versus Q1 2022, although net income fell 42.7% year over year to US$217 million.
Magna acquired Veoneer Active Safety recently to broaden its active safety portfolio while strengthening its global position as a top active safety supplier. More importantly, the new business could generate over US$3 billion in sales in 2024.
Strengthening businesses
The outlook is bright for Exchange Income Corp., or EIC, following the record first-quarter revenue of $527 million in Q1 2023. In the same quarter, net earnings and free cash flow jumped 83% and 27.7% year over year to $6.8 million and $60 million, respectively.
Its CEO Mike Pyle said, “We saw continued strengthening in both of our Aerospace & Aviation and Manufacturing segments, which bodes well for our future.” Carmele Peter, president of EIC, said the businesses and strategy remain resilient, notwithstanding the uncertainty in the broader economy.
At $51.59 per share (+0.4% year to date), the $2.39 billion diversified company pays an attractive 4.88% dividend yield. The industrial stock hasn’t missed paying monthly dividends since 2004.
Strong earning s
Cargojet, Magna International, and Exchange Income Corp. are prepared and well positioned to ride out economic uncertainties, including a potential recession in the second half of 2023. The strong earnings in their most recent quarterly results reflect business resiliency. Income investors can also expect uninterrupted dividend payouts.
The post A Fresh Take on Value Investing: 3 Undervalued Industrial Stocks to Watch appeared first on The Motley Fool Canada .
Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Cargojet. The Motley Fool recommends Magna International. The Motley Fool has a disclosure policy .
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