We recently compiled a list of the Jim Cramer’s Bold Predictions About These 10 Industrial Stocks. In this article, we are going to take a look at where Powell Industries, Inc. (NASDAQ:POWL) stands against the other industrial stocks.
As 2024 comes to an end, the flagship S&P index is up by 25.9% year to date, driven primarily by technology stocks and investors rushing to pile into artificial intelligence. Additionally, as opposed to earlier worries of a recession, the US GDP has continued to grow as well. According to the Bureau of Economic Analysis (BEA), America’s economy grew by 3.1% in Q3. According to the IMF, the US GDP is projected to grow by 2.8% in 2024 and stand out from most of the developed world and China.
Yet, while technology stocks and the industry are eye-catching, they are not the only components of the economy. In 2024, while the overall economy has grown, some sectors haven’t done well. One sector that’s often perceived to be the pulse of the economy is the industrial sector. It measures output from large-scale plants, and in today’s era of high interest rates, industrial stocks haven’t done too well.
For instance, while the broader S&P is up 25.9%, its industrial component has managed to post 16.94% in gains this year. The sluggishness in the industrial sector hasn’t gone unnoticed by Jim Cramer either. On the day the Federal Reserve cut interest rates by 25 basis points but reduced 2025’s projected rate cuts to two from an earlier four, Cramer commented on the state of the American economy ahead of the Fed’s announcement.
He outlined the need to look at other sectors apart from technology. “Look at the material stocks, look at anything related to industrial export. Look at the housing stocks,” said Cramer, adding “There are cohorts that are indeed rolling over. It isn’t like everything is just super strong and everything is quantum computing and Rocket Lab!” Cramer wondered why the Fed was cutting rates at all since the economy appeared to be quite robust. He stressed the need to sift through the data to find out the real state of the economy. According to Cramer, “So I think that the talking heads, and boy are there ever a lot of talking heads, have decided that if you look at what we’re seeing in some retailers, things are strong. By the way in retail, it’s not strong either if you count colds.”
The CNBC host wasn’t convinced by the Atlanta Fed’s estimate of the US GDP growing by 3.2% in Q4. He stated that he was “trying to find why. I’m trying to find where that is. You know David that travel’s very strong yeah. Leisure’s very strong. Dining out’s very strong. These are strong and by the way, they’re very obvious, they look obvious to the Atlanta Fed. I don’t know what kind of weighting they have but wow.”
Another sector that’s representative of the broader economy and ties closely with industrial stocks is the automobile sector. Automotive firms often depend on the outputs of industrial firms, and if the industry is slow then industrial firms also face a demand slowdown. America’s two biggest auto manufacturers, the firms behind the F-150 truck and the company developing the Cruise autonomous driving system, have both struggled in the stock market in 2024. The former’s stock is down 17.5% year-to-date and the latter was up by a mere 10.5% by early August when investors were more uncertain about the economic outlook. Similarly, Elon Musk’s car company had gained just 1.22% ahead of the election as its EV business continued to struggle with competition overseas and slow sales in the US.
Cramer also commented on the trouble that the automotive sector is facing during the program. He was perplexed as to why “the problems with autos are not so visible among the cognoscenti.” It’s important to dig deeper into the automobile industry since it “is a huge industry. Employs a lot of people. And the layoffs and the ramifications of what could happen here and other mergers,” Cramer commented.
Our Methodology
To compile our list of Jim Cramer’s bold predictions about industrial stocks, we scanned the stocks he mentioned in Mad Money and Squawk on the Street as far back as in August. Then, we picked out industrial and materials stocks and ranked them by the number of hedge funds that had bought the shares in Q3 2024.
For these stocks, we also mentioned the number of hedge fund investors. Why are we interested in the stocks that hedge funds invest in? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A circuit breaker installed in a control panel illuminated by bright LEDs.
Powell Industries, Inc. (NASDAQ:POWL)
Number of Hedge Fund Holders In Q3 2024: 26
Date of Cramer’s Comments: 8-19-24
Performance Since Then: 35.10%
Powell Industries, Inc. (NASDAQ:POWL) is an industrial equipment provider that primarily makes and sells electrical equipment. Its products are used across a wide range of industries such as utilities, energy exploration, and most important, data centers. Powell Industries, Inc. (NASDAQ:POWL)’s utility and data center businesses have catalyzed the shares this year which are up by 156% year-to-date. The growth has come on the back of the firm’s revenue growing by 45% in its fiscal year 2024. The stock soared by 26% after Trump’s victory in the November election as investors expected Powell Industries, Inc. (NASDAQ:POWL) to benefit from lower regulation in energy exploration and a broader economic recovery. Here’s what Cramer said in August:
“Lately, the market has fallen in love with a particular kind of industrial stock. These are still smokestack stocks, but they also have powerful secular growth drivers, meaning they can thrive even if the economy doesn’t accelerate. Tonight, I have a smaller company that falls into the same category: Powell Industries. This company has been around since 1947 and went public decades ago. However, the stock has caught my attention over the past couple of years, skyrocketing from $20 in late September 2022 to $171 today—a gain of more than 700%. So, what does this company do, and how did the stock manage to catch fire like this? More importantly, can it keep running once the Fed starts blessing us with rate hikes?
“Let’s start with the basics. Powell makes custom-engineered equipment that distributes, controls, and monitors the flow of electricity while also providing protection to all sorts of electrically powered hardware, like motors and transformers. If you want to know why the stock languished from 2014 through late 2022, it’s because of their exposure to the oil and gas industry. Even now, the fossil fuel industry accounts for 59% of Powell’s sales year-to-date. However, the stock’s spectacular breakout over the past couple of years has been driven by Powell’s success in new markets, namely utilities, transportation like light rail, metals and mining, pulp and paper, and of course, data centers. Everything really came together for Powell Industries last year, with these new businesses generating tremendous growth. After four years of being stuck in the $500 million revenue range, Powell posted 31% revenue growth in 2023, reaching total sales of just under $700 million.
“Meanwhile, their earnings per share nearly quadrupled—from $1.15 in 2022 to $4.50 last year. It’s like hitting the lottery. Essentially, if their equipment can handle the petrochemical business, it can handle utilities, especially those in the Gulf Coast, where many of their petrochemical customers are located. Cope also mentioned data centers, electric vehicles, and semiconductors. When you put it all together, it’s easy to see how Powell’s orders grew by 94% last year, with their backlog increasing by 118% to $1.293 billion—the first time their backlog ever crossed the $1 billion mark.
“These numbers are incredible, yet Wall Street continues to underestimate this company, allowing Powell to repeatedly blow away the estimates. It’s like the old days when companies were smaller, moving from midcap to large cap. When Powell reported at the end of January, they posted 53% revenue growth and earned $1.98 per share. Analysts were only expecting $0.84. Yes, that’s right—they more than doubled the analyst consensus, which is extraordinary.”
“When Powell reported again in early May, they delivered another monster revenue beat with a staggering $0.97 earnings beat, off a $1.78 estimate. That’s an upside surprise of almost comical proportions. Most recently, Powell delivered yet another stunning quarter at the end of July, with much higher-than-expected revenue, earning $3.79 per share. Wall Street had only expected $2.16. No wonder the stock has more than doubled in the past seven months—these beats are extraordinary.”
Overall POWL ranks 9th on our list of the industrial stocks Jim Cramer recently talked about. While we acknowledge the potential of POWL as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than POWL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.