Money-Making Machines - Zacks Industry Rank Analysis

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Industry Rank Analysis 4-4-12

The U.S. economy is continuing to recover, and one of the sectors which has been the real engine of that growth is business investment in equipment and software.  While such investment in the fourth quarter accounted for less than 7.6% of the overall economy, it accounted for 18.3% of the overall growth in the fourth quarter, and that was down from an astounding 62.2% in the third quarter and 33.8% of the growth in the second quarter.  

Today I am focusing on the equipment side of that, and more specifically investments in machinery.  The strong macro performance of the sector is showing in upward estimate revisions and positive earnings surprises, and those in turn at reflected in the Zacks Rank.

Zacks Industry Classifications
 
The Zacks industry classifications are very fine, with 258 different industries tracked.  It is not particularly noteworthy if a single small industry shows up doing well; a single firm with good news can propel a one or two firm industry to the top (or bottom) of the charts.  

It is interesting when you see a cluster of similar industries at the top of the list.  The same holds true for the bottom of the list.  The definition of size that matters here is not the total sales or market capitalization but the number of companies in the "industry."  

4 Machinery Groups Working Well

There are four Machinery "industries" that are showing up very well on the Zacks Rank.  The strongest three of which are about median sized "industries," with seven or eight firms in them.  The "weakest" of the four is by far the largest, General Industrial Machinery, with 37 firms in it.  It still shows up pretty well, coming in 44th place, a drop of five slots from last week.  Its average Zacks Rank is 2.57, up slightly from 2.54 last week.  

The strongest of the Groups is Machine Tools, with eight firms in it.  It is currently the fifth strongest "industry" with an average Zacks Rank of 1.88, down from 2.00 last week.  In Between we have the Construction and Mining Machinery "industry" in 19th place (up one from last week, and an average Zacks Rank of 2.38, unchanged from last week), and The Farm Machinery "industry," a seven member group in 23rd place, slipping one spot from last week on an unchanged average of 2.43.

If the Zacks Ranks were distributed randomly, one would expect that only 5% of the members of the firms would earn the coveted Zacks #1 Rank (Strong Buy).  Instead, of the total of 13 firms in these four groups, 21.7%, have earned that distinction.  If it were random, only 15% would hold Zacks #2 Ranks (Buy) but actually 10 (16.7%) hold it.  

Go Big or Go Small   

There is a huge range of market capitalizations from which to choose from on these lists, from very large down to micro cap.  While the growth rate from this year to next is not shown directly, you can get a sense of it from looking at the change in the P/E ratio from this year to next.  Most of these firms are looking at very respectable growth rates, at least in the short term.

Of course, Machinery is a quintessentially cyclical part of the market, so it is NOT a good idea to extrapolate those growth rates too far into the future.  It does, however, indicate that we are in the middle of a cyclical upswing. Valuations on these stocks -- particularly if you are willing to look out to FY2 (mostly 2013) earnings -- are quite reasonable.  While most of the smaller cap names do not pay dividends, some of the large and mid-cap cap names do provide a nice payout.

Number 1 Ranked Firms

Company Ticker Market Cap ($ mil) P/E Using Curr FY Est P/E Using Next FY Est "%Ch Curr Fiscal Yr Est - 4 wks" "%Ch Next Fiscal Yr Est - 4 wks" "Current Price" Div Yield
Caterpillar Inc CAT $58,661 12.86 9.76 1.69% 3.36% $90.99 2.02%
Lincoln Electrc LECO $2,639 12.95 10.94 12.37% 9.97% $31.28 1.98%
Robbins & Myers RBN $1,987 18.6 14.36 0.00% 0.00% $43.48 0.41%
Middleby Corp MIDD $1,434 16.58 13.95 0.00% 0.00% $76.50 0.00%
Actuant Corp ATU $1,377 12.24 10.26 0.00% 0.00% $20.06 0.20%
Barnes Grp B $1,191 15.37 12.61 5.29% 3.58% $21.87 1.46%
Lindsay Corp LNN $692 18.55 17.45 0.00% 0.00% $55.08 0.62%
Sun Hydraulics SNHY $647 17.2 14.7 0.08% 0.06% $25.25 1.43%
H&E Equip Svcs HEES $355 N/A 12.32 -226.32% 0.00% $10.14 0.00%
Dxp Enterprises DXPE $322 11.66 9.81 4.45% 4.10% $22.81 0.00%
Hurco Cos Inc HURC $168 18.11 12.98 0.00% 0.00% $26.08 0.00%
Flow Intl Corp FLOW $146 19.87 11.41 0.00% 0.00% $3.08 0.00%
Manitex Int Inc MNTX $48 16.96 8.48 0.00% 0.00% $4.24 0.00%

Number 2 Ranked Firms

Company Ticker Market Cap ($ mil) P/E Using Curr FY Est P/E Using Next FY Est "%Ch Curr Fiscal Yr Est - 4 wks" "%Ch Next Fiscal Yr Est - 4 wks" "Current Price" Div Yield
Deere & Co DE $30,496 11.34 9.68 0.33% 0.01% $72.66 2.26%
Sandvik Ab SDVKY $16,062 11.88 9.47 -8.80% -8.33% $13.54 2.86%
Eaton Corp ETN $14,450 10.51 8.88 2.60% 2.62% $42.35 3.21%
Kubota Corp Adr KUB $10,827 15.37 14.14 0.00% 0.00% $42.57 1.74%
Metso Corp -Adr MXCYY $5,765 13.64 10.66 -5.20% -4.74% $38.53 4.86%
Idex Corp IEX $3,128 15.33 13.17 1.69% 2.14% $37.74 1.80%
Nordson Corp NDSN $2,944 12.65 11.61 0.13% 0.13% $43.13 0.97%
Terex Corp TEX $2,016 35.81 8.55 -29.53% -8.27% $18.39 0.00%
Astec Inds Inc ASTE $730 16.19 12.77 13.95% 8.92% $32.22 0.00%
Graham Corp GHM $178 17.07 13.16 4.64% 1.99% $17.98 0.44%

 
CATERPILLAR INC ( CAT ): Free Stock Analysis Report
 
DEERE & CO ( DE ): Free Stock Analysis Report
 
EATON CORP ( ETN ): Free Stock Analysis Report
 
KUBOTA CORP ADR ( KUB ): Free Stock Analysis Report
 
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Zacks Investment Research



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks

Referenced Stocks: CAT , DE , ETN , KUB

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