Let’s be honest. When an investor is looking for growth, they’re not starting their search with industrial stocks. These companies tend to be closely tethered to the economy itself, which just doesn’t move all that quickly.
Every now and then, though, an industrial stock will surprise you. The right industrial company with the right product or right service at the right time can drive more gains than you might have thought possible. Here’s a closer look at two of these tickers.
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Illinois Tool Works
Despite the name, Illinois Tool Works (ITW +2.21%) actually makes very little in the way of traditional tools. Rather, restaurant-scale dishwashers, industrial testing and measurement, welding supplies, plastic packaging, and automobile parts are a sampling of this conglomerate’s product portfolio, with each of these distinctly different business lines being run independently of one another.
The thing is, it works. With a leaner, simplified structure that fosters grassroots entrepreneurialism, Illinois Tool Works is consistently able to outperform its industrial peers. Its first-quarter revenue improved 5% year over year, with more than 25% of that top line being turned into operating profit despite inflationary headwinds already blowing at the time. Analysts expect similar results for its second fiscal quarter as well.
Today’s Change
(2.21%) $6.11
Current Price
$283.02
Key Data Points
Market Cap
Day’s Range
$276.23 – $283.03
52wk Range
$238.82 – $303.15
Volume
1.3M
Avg Vol
1.4M
Gross Margin
43.65%
Dividend Yield
2.28%
The chief driver of this stock’s market-beating growth, however, is a combination of its dividend payments and persistent stock buybacks. This Dividend King, a company that’s grown its dividend payment for at least 50 consecutive years, has not only upped its per-share payout for 63 consecutive years now but, during the past decade, has also raised its dividend at an average annual pace of a little over 10%, boosted by the repurchase of nearly 10% of its outstanding shares over the course of just the past five years.
The end result is solid net gains driven largely by reinvested dividends rather than raw price appreciation. But it works.
You’d be stepping into a forward-looking dividend yield of 2.3%, by the way, if you wanted to use these cash payments for something other than buying more shares of the company making them.
CarMax
Yes, even though it’s dependent on the ever-changing financial health of consumers, used car dealership chain CarMax (KMX -0.17%) is categorized as an industrial stock.
It hasn’t performed particularly well in a while. After peaking during (and ultimately because of) the COVID-19 pandemic, shares have lost more than 60% of their value, hitting a multiyear low just this past December.
Today’s Change
(-0.17%) $-0.10
Current Price
$58.29
Key Data Points
Market Cap
Day’s Range
$57.55 – $59.65
52wk Range
$30.26 – $62.56
Volume
3.7M
Avg Vol
3.3M
Gross Margin
10.68%
The growth of online-only rival Carvana, the rise of ride-hailing services like Uber and Lyft, and the growing unaffordability of used cars themselves (Cox Automotive’s Kelley Blue Book indicates the average price of a used car in the United States is now back to a three-year high above $27,000) are all contributing factors.
But consumers may be quietly struggling on their end of the business as well. Based on data from the U.S. Federal Reserve, Wards Auto reports 90-day delinquencies on auto loans remain at 3%, holding at levels last seen during the recession following 2008’s subprime-mortgage meltdown. This backdrop is obviously concerning for CarMax and, by extension, its shareholders.
What’s largely being lost in the mix, though, is the cyclical nature of all these headwinds and the fact that we may be nearer the end of the downcycle and closer to the beginning of a new up cycle than most investors realize. As Cox Automotive’s Chief Economist, Jeremy Robb, explains, “Affordability drives demand for used units, but lower new-car sales mean fewer trade-ins, and that means lower used sales for dealers.”
In other words, the used automobile industry’s biggest headwind right now still isn’t a lack of demand or crimped consumerism, but rather a lack of inventory.
It’s coming, though, sooner or later, and likely sooner than later. Indeed, Cox adds that the nation’s used car inventories have been edging higher for a few months now, climbing from March’s multiyear low to 47 days’ worth of inventory as of last month. It’s a start.
Or if nothing else, consider this: With the Bureau of Transportation reporting the average age of cars being driven on U.S. roads now stands at 12.8 years, while the average sales price of a new vehicle is a jaw-dropping $49,758 (again, according to Cox), consumers may have little choice but to visit their nearby CarMax soon.
This stock has climbed more than 40% since the end of last year, by the way, rallying 19% just last month. It may be a subtle sign that its business has turned the corner, even if most people don’t yet see it.