In late November,market cap. The purpose of the exercise was to
pinpoint which slivers of the market were the best-positioned to
make big gains in 2013, since as much as 40% of an individual
stock's performance is ultimately attributable to its sector's
Although a handful of sector/market cap groups stood out as
winners, one group in particular was an obvious "must have" for
2013: Mid-cap industrial stocks.
Yes, many of the stocks in this segment of the market are not
only boring, but also unfamiliar to many investors. But that's OK
-- boring, obscure stocks are often the ones that quietly dole out
the biggest rewards.
With that in mind, here are the top three picks from the group
that investors should consider buying as they head into the new
1. Triumph Group (
Triumph Group Inc. is an aerospace and defense contractor. But the
company is also a manufacturer and a designer, catering to the
public sector as much as the private, and making just as much
hardware for new aircraft as it does to maintain older planes. But
the most compelling aspect of this company is found on itsincome
In each of the past 11 quarters, Triumph Group has
toppedearnings estimates. Last quarter, for instance, the company
beat estimates of $1.33 by earning $1.57 per share. In the quarter
before that, Triumph earned $1.48, leaving expectations of $1.28
per share in the dust.
Looking ahead, analysts expect the contractor to grow thebottom
line by 22% per year. Given the strong growth trend already in
place though, in addition to a very palatable trailing
price-to-earnings (P/E ) ratio of 10.9, this boring little
contractor is simply too underestimated.
2. URS Corp. (
URS Corp. isn't even close to being a household name, but the
company designs, builds and maintains all sorts of large-scale
equipment and facilities for some well-known companies, and even
government agencies and the military. Some recently-awarded
projects include the construction of a mine-tailings
Freeport-McMoRan Copper & Gold (
, a maintenance contract for some of the U.S. Army's radar
equipment, and a contract with the U.S. Department of Energy to
properly manage the radioactive waste from the department's nuclear
power plant in Idaho. Those three projects alone could create
nearly $1 billion in business for URS Corp.
It's still all rather mundane stuff, but like Triumph, there's
nothing mundane about itsbalance sheet . URS has grown the bottom
line every year since 2007, with only one minor exception in 2011
when earnings fell from $3.54 per share in 2010 to $3.53 per share
the next year. The company is back on track though, on pace to earn
$4.27 per share this year. That 21% growth forecast versus the
forward-looking earningsmultiple of only 8.6 makes this stock a
3. Trinity Industries Inc. (
As was the case with Triumph Group and URS Corp., Trinity
Industries, has more than one business line. However, its ventures
can be narrowed down to two basic industries: Transportation and
infrastructure engineering. It makes everything from railroad cars
and barges, to highway guardrails and wind-turbine towers. None of
it is riveting, but all of it is necessary.
Also like URS and Triumph, Trinity Industries has a fundamental
pedigree that makes it buy-worthy: The forward-looking P/E is a
mere 9, and earnings are forecast to grow more than 16% next year.
Trinity fell short of revenue as well as earnings estimates last
quarter, but sales were still up 18% compared with last year, and
per-share earnings were higher by 90%. As for thecatalyst that
really could jolt Trinityshares out of what's now almost a two-year
slump, don't worry -- it's likely on the way.
Although rail cars deliveries are expected to fall 15% in 2013
compared with 2012's levels, by 2014, sales of railroad cars are
expected to exceed 2012's total by more than 22%. Simultaneously,
if the United States is going to recover at all, this rebound is
going to have to materialize in 2013. Those converging trendswill
put all of Trinity's businesses into high gear.
Risks to Consider:
As strong as any industry orcorporation can be, no company is
completely immune to setbacks. The primary risk these three stocks
face is the same most other companies face: A broad economic
Action to Take -->
Generally speaking, one stock from a single sector/market-cap group
would be enough to fill a hole in a portfolio, while two stocks
from that group would be overkill. In this particular case though,
these three stocks are different enough from one another that
owning a piece of all three wouldn't be redundant.
Investors who only have room for one new pick, however, should
consider Triumph Group first. It's proven the most consistent of
the three and is highly diversified. Shareholders willing to sit
tight for at least a year could realistically find themselves up
30%, if not more, by this time in 2013.
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