Discounts Remain in Multi-Industrials
We find several undervalued stocks and one compelling bargain.
Predicting a market bottom is a fruitless exercise. In our view, the central tenet of all intelligent investing is a stock’s margin of safety, which maximizes preservation of capital through all market cycles. Although the bands of uncertainty have widened amid the global pandemic, we believe we can recalibrate and price securities in a base-case scenario based on historic economic cycles, medical data, government intervention, and market commentary from informed participants. After the late March rally, we find several discounted stocks and one compelling bargain. In this piece, we put portions of our U.S. multi-industrials coverage into four buckets: cash compounders, traditional quality, dividend aristocrats, and beaten-down value. Our favorite stocks in these respective categories are Roper Technologies (ROP), Honeywell (HON), Emerson Electric (EMR), and General Electric (GE).
Bumpy Recovery, but Short-Cycle Businesses Return First
The average discount in our U.S. multi-industrials coverage is 10%, compared with the Morningstar market fair value discount of 5%. Even so, this is a category that is arguably better positioned to benefit from a recovery, given the business-to-business mission-critical services it provides. 2020 will be a terrible year for industrial earnings, but we believe investors should look past this year when assessing underlying value.
Joshua Aguilar does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.