Investment Opportunities In The Producer Manufacturing Sector

Introduction

Although I consider the overall stock market as represented by the S&P 500 to be overvalued, not all stocks are overvalued. This has been one of the primary reasons that I have attempted to cover the 20 sectors reported on by FactSet. It’s very common for investors to get caught up in either their views or others views of stock market values based on generalities. However, it is my position that it is a market of stocks and not a stock market. Consequently, I consider it more prudent and in the long run profitable to pay more attention to your individual holdings than the overall market.

Now that I have covered 15 of the 20 possible sectors, it should be clear to those who have followed this complete series that there are more differences between individual stocks than similarities. Moreover, not only are companies in different sectors quite different from companies in other sectors, but there are also a lot of differences between companies in the same sector. As the following 23 screenshots on the companies, I am covering in this Producer Manufacturing Sector clearly illustrate, even companies in the same sector can possess their own unique and often radically different characteristics from other constituents in the same sector.

Some of you may be asking what’s the point of all this, aren’t I merely stating the obvious? When your focus is clear, that may be true. However, I am reminded of a recent conversation I had with a long-standing client who was asking me why I was not currently including bonds in his portfolio. I pointed out that I am only temporarily avoiding bonds because I believe their interest rates are too low. Nevertheless, he responded with “yes, but stocks are risky.” I responded back with the level of risk in stocks varies from company to company. Additionally, I pointed out that the risk of price volatility in bonds are also potentially high due to today’s low-interest rates.

My point is simple and straightforward. All stocks should not be judged the same. The concept of risk is a very multifaceted concept. As this relates to stocks, there are some that are quite risky, and others not so much. It is my contention and opinion that these risk assessments should be made on a case-by-case basis and not in a general way. Therefore, I offer this series of articles in order to put a spotlight on this very important point. Although all the companies I’m covering with this article are in the same sector, I hope the reader appreciates that there are significantly different levels of risk between one and the other.

A Sector By Sector Review

This is part 15 of a series where I have conducted a simple screening looking for value over the overall market based on industry classifications and subindustry classifications reported by FactSet Research Systems, Inc.

In part 1 found here, I covered the Consumer Services Sector. In part 2 found here, I covered the Communication Sector. In part 3 found here, I covered the Consumer Durables Sector and its many diverse subsectors. In part 4 found here, I covered Consumer Nondurables. In part 5 found here, I covered companies in the Consumer Services Sector. In part 6 found here, I covered the Distribution Services Sector.  In part 7 found here, I covered the Electronic Technology Sector. In part 8 found here, I covered the Energy Minerals Sector. In part 9 found here, I covered the Finance Sector. In part 10 found here, I covered the Health Services Sector. In part 11 found here, I covered the Health Technology Sector. In part 12 found here, I covered the Industrial Services Sector. In part 13 found here, I covered the Non-Energy Minerals Sector. In part 14 found here, I covered the Process Industries Sector.

In this part 15, I will be covering the Producer Manufacturing Sector.

In each article in this series, I will be providing a listing of screened research candidates from each of the following industry sectors, the sector I’m covering in this article is marked in green:

Sector 15:  Producer Manufacturing

Metal Fabrication

Industrial Machinery

Truck/Construct/Farm

Auto Parts:  OEM

Building Products

Electrical Products

Office Equip/Supplies

Miscellaneous Manufacturing

Industrial Conglomerates

A Simple Valuation and Quality Screening Process

With this series of articles, I will be presenting a screening of companies that have become attractively valued primarily as a result of the bearish market activities experienced in 2018 from each of the above sectors. I will be applying a rather simple valuation and quality-oriented screen across each of the sectors. First, I have screened for investment-grade S&P credit ratings of BBB- or above. Next, I have screened for low valuations based on P/E ratios between 2 and 17. Finally, I have screened for long-term debt to capital no greater than 70%.

By keeping my screen simple, and at the same time rather broad, I will be able to identify attractively valued research candidates that I might have overlooked through a more rigorous screening process. In other words, I’m looking for fresh ideas that I might have previously been overlooking. Furthermore, I want to be clear that I do not consider every candidate that I have discovered as suitable for every investor. However, I do consider them all to be attractively valued. Additionally, I also believe that every investor will be able to find companies to research that meet their own goals, objectives and risk tolerances as this series unfolds.

Portfolio Review: Producer Manufacturing Sector: 23 Research Candidates

FAST Graphs Screenshots of the 23 Research Candidates

The following screenshots provide a quick look at each of the 23 candidates screened out of over 19,000 possibilities. However, there are only 639 companies categorized as Producer Manufacturing, and these 23 were the only ones I was comfortable presenting in this article. The company descriptions are provided courtesy of the Wall Street Journal. In the FAST Graphs analyze out loud video that follows the screenshots, I will provide additional details and thoughts on the possible attractiveness as well as the potential negatives of each of these research candidates.

Autoliv Inc (ALV)

Autoliv, Inc. engages in the development, manufacture, and supply of automotive safety systems. It operates through the Passive Safety and Electronics segment. The Passive Safety segment includes airbags, seatbelts, steering wheels, and restrain electronics. The Electronics segment comprises of restraint control systems, brake control systems and active safety.

The company was founded by Lennart Lindblad in 1953 and is headquartered in Stockholm, Sweden.

Aptiv Plc (APTV)

Aptiv Plc engages in the design, development, and manufacture of vehicle components. The firm also provides electrical, electronic, and safety technology solutions to the global automotive and commercial vehicle markets. It operates through the following business segments: Signal and Power Solutions; Advanced Safety and User Experience segments; and Eliminations and Other.

The Signal and Power Solutions segment covers component and systems integration expertise in infotainment and connectivity; body controls and security systems; displays; passive and active safety electronics; autonomous driving software and technologies; and software development. The Eliminations and Other segment comprises of elimination of inter-segment transactions, other expenses, and income of a non-operating or strategic nature.

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Disclosure: Long BWA, CMI, CR, ETN, UTX

Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or ...

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