GXO - Allegheny leads industrial gainers in H1 top 5 losers see over 50% stock value wiped out

Allegheny came at the top among industrial stocks — which also included aero-defense companies — in H1 while navigating an environment plagued by war, rising inflation and fears of recession. Meanwhile, Vertiv lead the decliners, which included building products makers, as these worst five performers saw more than 50% erosion in their stock value.

For the first half of the year, the SPDR S&P 500 Trust ETF ( SPY ) finished -19.9% , being in the red for four out of the first six months of 2022. The Industrial Select Sector SPDR ( XLI ) also lost -16.38% .

The top five gainers in the industrial sector (stocks with a market cap of over $2B) all gained more than +29% each in H1.

Allegheny Technologies ( NYSE: ATI ) +42.92% . The Pittsburgh, Pa.-based specialty materials maker's stock gained well at the start of the year. The stock was the top industrial gainer (in this segment) in one week in January and in another week landed among the best five. The company also gained in February, after its Q4 results beat analysts' estimates. The stock also surged on May 4, after after the company reported a +20.4% Y/Y rise in Q1 revenue .

The SA Quant Rating on Allegheny is Strong Buy , which which takes into account factors such as growth and profitability, among others things. The average Wall Street Analysts' Rating is also Strong Buy , wherein 5 out of 8 analysts give it a Strong Buy rating. SA contributor, Fade The Market wrote in June: Allegheny Technologies: Riding The Growth.

Cornerstone Building Brands ( CNR ) +40.34% . The Cary, N.C.-based company's stock was the top industrial gainer for two weeks in a row in February after reports surfaced that Clayton, Dubilier & Rice was mulling an offer to buy the remainder of the company it doesn't already own. In March CNR agreed to be acquired and taken private by the firm in a deal with an enterprise value of $5.8B.

Looking ahead at the Construction sector : Baird updated its 2022/2023 U.S. Construction forecast, with a comprehensive look at various verticals (Private non-residential, Public non-residential, and Residential). Relative to the firm's December 2021 estimate, it was raising its 2022 spending growth estimate by 100 basis points to 7%, while reducing its 2023 estimate as it now forecast a 3% decline (an 11% contraction in Residential, is expected to offset ~7% Non-residential growth).

The chart below shows YTD price-return performance of the top five gainers and SP500TR:

Aero-defense stocks AeroVironment ( AVAV ) +32.90% and Elbit Systems ( ESLT ) +31.16% , took the third and fourth spot, respectively, in H1 gainers buoyed amid the Russia-Ukraine war.

Drone maker AeroVironment ( AVAV ) was among the aero-defense stocks being initiated at Berenberg in January. AVAV got a Hold rating then with a price target of $66, after more than five months now the stock has breached the $85 mark. However, in April, Baird downgraded stock to Neutral with a $95 price target, saying the stock was "ahead of itself" and noted that future Switchblade orders would take time to materialize. But in May, RBC Capital upgraded AVAV to Outperform noting that the Switchblade drone had significantly reset the company's investment opportunity at a higher level. In the past six months, AeroVironment has bagged several contracts for its Puma line of unmanned aircraft systems. However, the company's FQ4 revenue saw a -2.5% Y/Y decline and it has  issued a below-consensus guidance for FY 2023 earnings.

The average Wall Street Analysts' Rating for AVAV is Buy , with an Average Price Target of $92.5. The rating is in contrast to the SA Quant Rating of Hold , with Valuation and Growth both having a factor grade of F.

Meanwhile, Elbit Systems ( ESLT ) finished the week ending July 1 on a high, as the stock was the top industrial gainer (in this segment).  ESLT was also among the top five gainers in June . In H1 2022, the company secured around 10 contracts that we know of, notables being: a $548M contract with a country in the Asia-Pacific region; a ~ $130M deal to deliver an artillery munitions production line; a $220M contract to supply precision guidance kits for airborne munitions. The SA Quant Rating and the average Wall Street Analysts' Rating , on ESLT is Hold.

Golden Ocean Group ( GOGL ) +29.48% . The Bermuda-based shipping company saw decent gains from February till the start of June (see chart here ). The company was the top industrial gainer for a week in April . GOGL also rose in May following its Q1 earnings beat, and a strong forecast for the quarters ahead. The stock however has hit rough waters since the second week of June, amid a global fear of recession and impact on container demand. The SA Quant Rating on GOGL is a Strong Buy , while the average Wall Street Analysts' Rating is Buy .

H1 top five decliners among industrial stocks (market cap of over $2B) all lost more than -51% each.

Vertiv ( NYSE: VRT ) -67.12% . The last week of June summed up the the stock's misfortune, as for the week ending July 1, VRT was the worst performer (in this segment). The stock crashed 40% following its Q4 results in February, wherein revenue missed Street estimates. The Ohio-based company, which provides equipment and services to data centers, had also noted that supply chain headwinds would persist through 2022. (See chart here ). The SA Quant Rating on the stock is Hold , which in contrast to the average Wall Street Analysts' Rating of Buy .

Building products makers Azek ( AZEK ) -63.27% and Trex ( TREX ) -59.50% , came in the second and third spot for H1 worst decliners.

Both Azek and Trex saw a downgrade in April at Loop Capital  to Hold from Buy on the basis of a muted mid-term outlook. However, in June BofA Securities upgraded Azek to Buy noting that the stock's valuation has de-rated versus building products group and growth potential was compelling.

The SA Quant Rating on AZEK is Sell , with Profitability having a factor grade of C- and Momentum having a D- factor grade. The rating is in contrast to the average Wall Street Analysts' Rating of Strong Buy , wherein 12 out of 19 analysts give the stock a Strong Buy rating.

Meanwhile, the average Wall Street Analysts' Rating for TREX is Buy , with an Average Price Target of $75.82. The rating is in contrast to the SA Quant Rating of Hold , with Growth having a C+ factor grade and Momentum with a factor grade of D.

The chart below shows YTD price-return performance of the worst five decliners and XLI:

Greenwich, Conn.-based GXO Logistics ( GXO ) declined -52.21% in H1. But the average Wall Street Analysts' Rating is Buy , with an Average Price Target of $82.93. Nine out of 15 analysts give it a Strong Buy rating. In May CNBC commentator Stephen Weiss was bullish on GXO. The stock, however, has continued to decline (see chart here ). In February, GXO said it was acquiring Clipper Logistics in a deal worth ~$1.26B.

Nikola ( NKLA ) -51.82% . The electric vehicle maker was the worst performing industrial stock in June and Q2 (in this segment), declining -33% and -57%, respectively. Nikola's stock started trending downwards after mid-January, before trying to pick up at March end (see chart here ) but then again declining from April. March began with Auto stocks falling on anxiety over the impact of Russia's attack on Ukraine. The average Wall Street Analysts' Rating is Hold , which is in contrast to the SA Quant Rating of Sell .

Looking ahead at the Auto sector : Baird now modelled global auto production +3% in 2022, versus its previous estimate of +5%. Primary factors considered by the firm included outsized chip impact on Japanese and Korean auto production, while it also fine-tuned North America (conservatism), Europe (due to Russia/Ukraine war) and China (due to lockdowns).

Looking ahead at the Rental sector : Baird notes that FY23 U.S. rental revenue guidance growth seem to be entirely driven by fleet expansion. The firm noted that H1 2022 would be remembered as one of the best periods for equipment rental fundamentals. Baird added that it remained firm in its view that industry equipment supply/demand dynamics are prepared to shift in H2 2022 and into 2023 which could moderate rental rates and revenue growth/margins.

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