3 Industrial Stocks You Can Buy at Discounted Prices

3M (hmm 1.64%), carpentry skills (CRS -1.36%)and owens corning (O.C. -0.32%) Although they are vastly different stocks, all three are attractive from a risk/reward perspective. They each have different investment cases, so let’s take a look at why they are a good fit for a value investor’s portfolio.

3M is undervalued

These industrial giants are not the highest quality companies. After all, mediocre growth, shrinking margins, and costly legal issues have plagued the company in recent years, not to mention question marks over the sustainability of its dividend.

That said, improvements are on the way. First, the high-profile legal issue of PFAS (polyfluorinated substances), combat earplugs, has become clearer, and investors have come to understand what they will have to pay over the years. Meanwhile, margins appear to be expanding due to management’s restructuring program. The bullet bites and 3M’s dividend is cut, freeing up resources to meet legal settlements, restructure the business and invest in growth. It also received $7.7 billion in cash. solvent 3M owns a 19.9% ​​stake in the company, worth about $2.3 billion at current prices.

Wall Street expects 3M to generate $10.8 billion in free cash flow (FCF) over the next three years. Combined with the cash resources discussed above and the reduced dividend payout requirement (40% of FCF), 3M will have sufficient cash to achieve its goals. Trading at an enterprise value (market capitalization + net debt) of less than 9 times expected 2024 earnings, the stock will likely bottom out in 2024, with some end markets, particularly electronics and semiconductors.

Carpenter Skills: Buy at a high price and sell at a higher price.

The company is an aerospace-focused producer and distributor of premium specialty alloys. The stock is up 104% over the past year and 45% so far in 2024, a fact that may make investors hesitant to buy the stock. But I don’t remember the stock price, and I think the stock still has great value.

Carpenter is a company with relatively high fixed costs. This means that profit margins will collapse once revenue is generated, but profits can increase sharply when end markets recover, as they are currently doing. The chart below illustrates these dynamics graphically, showing actual operating profit and FCF margin from 2024 to 2026 along with Wall Street analyst consensus.

Data source: marketscreener.com; Chart by author.

Carpenter’s confidence in its revenue growth stems from its extensive exposure to the commercial aerospace original equipment manufacturing (OEM) market and aftermarket as aircraft production ramps and flight departures continue to increase. About 57% of sales go into aerospace and defense, and about 15% into long-lasting implants for the aging population, another very attractive market.

Returning to the valuation issue, the rapid recovery in earnings and FCF means Carpenter trades at 15.5x estimated 2025 FCF and 13.3x estimated 2026 FCF. If you think a commercial aerospace recovery has the legs, Carpenter’s stock is a great value.

owens corning

This building and construction products (roofing, insulation, composites) company faces challenging market conditions in 2024. This is not surprising, given our focus on the North American residential housing market. Relatively high interest rates are putting pressure on the housing market, affecting stocks like Owens Corning.

But history shows that the housing market will improve when the interest rate cycle turns, and it often makes sense for a financially strong company to make an acquisition when the market appears to be at its worst.

That’s why the company agreed to acquire a residential door company. Masonite International. Assume that Owens Corning is able to generate the intended $125 million in cost synergies through the integration of Masonite. In this case, the company would pay only 6.8 times its estimated 2024 earnings before interest, taxes, depreciation, and amortization (EBITDA).

Image source: Getty Images.

Moreover, as interest rates decline towards the end of 2024, the market will begin to price in a housing market recovery beyond 2025. Buying Owens Corning stock trading at less than 12 times estimated 2024 earnings makes a lot of sense.