In reviewing the electrical equipment stocks, several appear to have significant price upside, while others might be best avoided at this juncture. The factors considered in making selections include earnings momentum, as well as the prospects for a particular firm’s end markets, its recent buyout activity, and the cost environment (specifically raw materials). Their expansions into emerging markets and, in certain instances, product development activities are also worth looking into.
Here are some to purchase a stake in at this time:
Improved demand conditions are driving up revenues for the distributor of wire and cable. Currently, though, margins are taking a hit from higher-priced copper inventories that are selling through at reduced profitability due to recent declines in the quote on that commodity. Due to this lag second-quarter revenue growth in the teens percentage, thanks to 10% to 15% volume gains, might well result in share net of only about $0.56 versus $0.74 in the prior year.
Still, given the bottoming of copper pricing, growth is likely to resume in the second half of 2013. I believe its core customer markets, energy infrastructure and construction, are in good shape. Moreover, a late-2012 acquisition of Alcan, a cable manufacturer with more than $600 million in annual revenues, should be accretive as the benefits of integration take hold, such as production, logistics and purchasing synergies.
With limited capital expenditure and debt paydown requirements, General Cable Corporation (NYSE:BGC) could well further expand its operations through asset purchases. The shares might be on track to rebound if material prices have in fact started to recover. Plus, their fundamental strength should support long-term capital appreciation, along with a modest dividend.
Sales of industrial and irrigation equipment consisting of residential groundwater and wastewater pumps, are pacing up by a high single-digit percentage. Earnings for now, however, will be inhibited by investments in projects aimed at capitalizing on long-term trends. Factoring in also a modestly-sized but rapidly growing Fuel Systems business, share net may well climb just over 10% this year.
Some of the aforementioned expansion initiatives are as follows: The launch of a gas and oil well dewatering category and the startup of the pump rental unit in the U.K. Furthermore, several measures are targeted at gaining a broader presence in emerging markets like Brazil, Colombia, India, and Australia.