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James Li
James Li
Articles (1225)  | Author's Website |

4 Undervalued-Predictable Industrial Companies on Virus-Peaking Optimism

Dow kicks off week up over 7.5% as investors see coronavirus peaking

In light of increasing optimism regarding the coronavirus reaching its peak, four industrial companies with strong business predictability and trading at least 30% below discounted free cash flow valuation are Snap-on Inc. (NYSE:SNA), Curtiss-Wright Corp. (NYSE:CW), TransDigm Group Inc. (NYSE:TDG) and Union Pacific Corp. (NYSE:UNP).

Dow Jones opens the week strong as investors see coronavirus peaking

On Monday, the Dow Jones Industrial Average closed at 22,649.74, up 1,597.21 points or 7.59% higher than last Friday’s close of 21,052.53 on the back of increased optimism regarding Covid-19’s peak. Apple Inc. (NASDAQ:AAPL), the top holding of Warren Buffett (Trades, Portfolio)’s Berkshire Hathaway Inc. (NYSE:BRK.A)(NYSE:BRK.B), gained approximately 8.72% for the day.

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Pershing Square fund manager Bill Ackman (Trades, Portfolio) said on Sunday in a tweet that he is “beginning to get optimistic,” with cases starting to peak in New York. Governor Andrew Cuomo said the state reported 594 new coronavirus casualties on Sunday, approximately 40 casualties fewer than the number on Saturday. Sunday marks the first daily decline in coronavirus-related deaths according to the governor.

According to John Hopkins University data, new U.S. Covid-19 cases on Sunday were 28,200, down from 33,260 new cases on Saturday.

Industrial sector leads S&P 500’s gains

The SPDR Select Sector Fund – Industrial (XLI) traded over 5% higher, leading the Standard & Poor’s 500 Index’s 4.95% gain.

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As such, investors might seek good opportunities in the industrials sector, which includes companies that manufacture machinery, hand-held tools and industrial products. The Undervalued-Predictable Screener, a Premium feature, seeks companies that have strong and consistent revenue and earnings growth over the past 10 years and are trading below intrinsic value based on discounted free cash flow and discounted earnings.

Snap-on

Snap-on manufactures premium tools and software for professional technicians. GuruFocus ranks the Kenosha, Wisconsin-based company’s profitability 9 out of 10 on several positive investing signs, which include a four-star business predictability rank, a return on equity that outperforms 91.92% of global competitors and an operating margin that has increased approximately 3.50% per year on average over the past five years.

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Snap-on’s margin of safety based on its discounted cash flow valuation is approximately 63%. Gurus with large holdings in Snap-on include the T Rowe Price Equity Income Fund (Trades, Portfolio) and John Rogers (Trades, Portfolio)’ Ariel Investments.

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Curtiss-Wright

Curtiss-Wright delivers engineered products and services to commercial, defense, power generation and other industrial markets. GuruFocus ranks the Davidson, North Carolina-based company’s profitability 9 out of 10 on several positive investing signs, which include a 4.5-star predictability rank, expanding operating margins and a return on equity that outperforms 89.29% of global competitors.

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Gurus with large holdings in Curtiss-Wright include PRIMECAP Management (Trades, Portfolio) and Mario Gabelli (Trades, Portfolio).

TransDigm

TransDigm manufactures products for electronic, power, fluid and mechanical motion control on aircraft and helicopters. GuruFocus ranks the company’s profitability 9 out of 10 on several positive investing signs, which include a 4.5-star business predictability rank, expanding operating margins and a three-year revenue growth rate that is outperforming 89.91% of global competitors.

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Union Pacific

Union Pacific operates over 32,000 miles of track in the western two-thirds of the U.S. GuruFocus ranks the Omaha, Nebraska-based company’s profitability 9 out of 10 on several positive investing signs, which include a 4.5-star predictability rank and an operating margin that has increased approximately 1.30% per year on average over the past five years and is outperforming over 95% of global competitors.

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Disclosure: Long Apple and TransDigm Group.

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About the author:

James Li
I am an editorial researcher at GuruFocus. I have a Master's in Finance from SMU, and I enjoy writing reports on financial trends and investor portfolios. Follow me on Twitter at @JamesLiGuru!

Visit James Li's Website


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