The U.S. stock market has performed very well this year so far, as in 2017 all 3 major indexes are up with significant gains. The Dow Jones recently broke the important level of 23,000 points with a return of over 16% in 2017, S&P 500 is currently over the level of 2560 points with a return of over 14% in 2017, and Nasdaq is currently over 6,600 points with a return of over 22%. With the major indexes at new record highs, the most important question for investors is twofold. Are there any bargains yet, and if not, any stocks that perform extremely well, have strong momentum and can possibly move ever higher? So as to get in the stock market rally this year, even with a delay in timing?

We will present 3 hottest stocks in the industrial sector, which can be candidates for this investing and trading scenario. The stocks are Cemtrex, Inc. (NASDAQ:CETX), Esterline Technologies Corporation (NYSE:ESL) and ABB Ltd (NYSE:ABB).

1.Cemtrex, Inc (NASDAQ:CETX)

The stock is; Industrial Goods, Industry: Industrial Equipment & Components.

Key Financial Information:

Fundamental Analysis:

We will analyze the financial performance and trends for the CETX stock for a 5-year period analysis for the years 2012-2016, as the fiscal year 2017 has not ended yet. Starting with the Income Statement, there is an uptrend for the Sales/Revenue, Gross Income, Net Income, EPS (basic and diluted) and EBITDA for these 5-years, a very positive fundamental feature. The revenues grew 64.72% in FY 2016 as compared to FY 2015 to 93.70M, while Net income grew 75.96% to 4.99M, and EPS (diluted) grew to $0.58 compared to $0.40, an increase of 45%. Also, the increase of about 125% to the EBITDA in FY 2016 of $7.36 million, compared to the EBITDA of $3.27 million in FY 2015 is very significant and positive for the valuation of the stock.

Cemtrex (NASDAQ:CETX), has a strong Balance Sheet and strong financial strength, with increased cash available in our 5-year trend analysis, increased Total Equity, and a low Debt/Equity ratio of 0.35, while liquidity is strong with a current ratio of 2.55 and a quick ratio of 1.66.

The Cash Flow Statement presents a volatile trend for Net Operating Cash Flow and Free Cash Flow for the 5-year period of our analysis. For FY 2016 and FY 2015, the company has positive and increasing cash flows, with a large increase of 247.52% for the Net Operating Cash Flow in FY 2016 to $14.04 million compared to the figure of $4.04 million in FY 2015, and an increase of 430.55% for the Free Cash Flow in FY 2016 with a reading of $13.37 million compared to the figure of $2.52 million for the FY 2015. This very large increase in the Free Cash Flow in FY 2016 supports at a very large degree our valuation of the stock and the statement that it is undervalued at the current stock price of about $3.30.

Financial Ratios Analysis:

Profitability ratios and margins ratios present a mixed trend. Cemtrex (NASDAQ:CETX), has managed to increase its Gross Margin from 11.31% in FY 2012 to 31.18% in FY 2016, but for Operating and Net Margin, there is an inconsistent trend. However, Operating Margin and Net Margin have increased in FY 2016 compared to FY 2015, with readings of 5.40% for Operating Margin and 5.33% for Net Margin in FY 2016, while in FY 2015 the figures were 4.40% and 4.99% accordingly. There is also an inconsistent trend for other measures of profitability, such as the Return on Assets and Return on Equity financial ratios. Both of them have declined in the FY 2016 compared to the FY 2015, but on a trailing twelve months basis, the company has higher ROE and ROA compared to the average ratios of its industry and sector. The company has a trailing twelve months ROE of 18.83% when the relevant ROE average readings for the industry and sector are 13.82% and 13.87%, and a trailing twelve months ROA of 8.0%, when the relevant ROA ratios for the industry and sector are 3.73% and 7.71% accordingly.

Activity ratios present a weak efficiency for the company as all of the following activity ratios Receivables Turnover, inventory Turnover, Fixed Assets turnover and Asset Turnover, present a downtrend, which is consistent for all of the previous 5-years for the Receivables and Asset Turnover, while for the rest of the efficiency ratios there is a decline for the latest three consecutive years.

Liquidity and solvency ratios present also increased volatility for the 5-year period of financial analysis, but their trend shows a company with increased financial health, good liquidity with a Current Ratio and Quick Ratio readings of 2.55 and 1.55 respectively for the latest quarter, while Debt/Equity Ratio has declined to 0.26 in the latest quarter, down from a reading of 0.96 for FY 2016. The company also is reducing its Financial Leverage Ratio with a reading of 1.77 for the latest quarter compared to a reading of 3.57 for FY 2016, and it has a trailing twelve months reading of 7.04 for its Interest Coverage Ratio, which is considered strong enough, posing not any short-term financial worries.

Growth is very important for any stock, especially for valuation purposes, and this sector is very strong for Cemtrex (NASDAQ:CETX)which grows at both attractive and not excessive levels. Again we focus on long-term growth rates based on a 5-year period analysis for years 2012-2016 to have a more indicative trend, as short-term trends often are prone to specific factors, which can distort the actual trends. The 5-year average growth rates for the company in FY 2016 for the Revenue, Operating Income, Net Income, and EPS are 46.83%, 35.61%, 37.64% and 37.04% respectively. The company, therefore, shows consistent growth both in Revenue and Profitability, which we consider a very positive aspect of our fundamental analysis.

Analyst Recommendation and Historical Surprises:

Although there are not many analyst opinions, only one, the consensus recommendation is outperformed, and this has not changed for the past three consecutive months. Cemtrex (NASDAQ:CETX) for the past five quarters has three positive and two negative surprises for sales, with an average surprise of 6.776%, and also three positive surprises and two negative surprises for EPS, with an average surprise of -0.128%.

Valuation Analysis:

We will compare the shares of Cemtrex (NASDAQ:CETX) to the average financial ratios of its industry and S&P 500 Index, and also to some of its major competitors as a basis for our relative valuation analysis.

Relative valuation table 1

From the relative valuation table 1, the CETX stock seems relatively significantly undervalued compared to all the average price ratios of its industry, and the relative price ratios of the S&P 500 index.

Technical Analysis:

Shares of seeming to have formed a double bottom around the level $2.75-$2.80, and although the stock is trading below its declining 50-day and 200-day moving averages, currently at 3.02 and 3.81 respectively, a close above the 50-day moving average may signal a shift in the trend change. There is also a recent bullish MACD crossover, and the ADX (14) indicator which measures the strength of the trend shows that the dominant trend is now an uptrend, as +DI current reading at 21.77 is above the –DI reading at 18.27. The reading for the strength of the trend is at 14.40, which is low, but if it increases it will signal a strength of the trend. The level around $3.02 former support, now resistance is important as a first confirmation of the trend shift, with the second level around $3.17-$3.20. If the stock closes above these levels, there are high chances to the upside continuation of the trend

2.ABB Ltd, (NYSE:ABB)

The stock is classified in Sector: Industrial Goods, Industry: Diversified Machinery.

The second stock we will mention is ABB Ltd, (NYSE:ABB), which has a large market capitalization of $54.30 Billion, compared to the very small capitalization of Cemtrex, Inc (). This very large difference of capitalization is an important factor for inclusion of stocks in any portfolio, as different capitalization numbers in most cases reflect different levels or risks associated with stock prices and their volatilities.

Key Financial Information:

Fundamental Analysis:

Our 5-year trend fundamental analysis for the period of years 2012-2016 shows a declining trend for Sales, Gross Income, Net Income, EPS( Basic and Diluted) and EBITDA. ABB Ltd revenues fell 4.66% in FY 2016 as compared to FY 2015 to 33.83B. Net income fell 1.76% to 1.90B. The company has a moderate to strong Balance Sheet, with plenty of Cash available as in FY 2016 the reading of Cash & Short Term Investments was 5.69 Billion, about 10.47% of current market capitalization, declining Long-Term Debt and declining Debt/Equity ratio, and good liquidity. There is a rising trend for Net Operating Cash Flows and also for Free Cash Flow.

Financial Ratios Analysis:

Starting with Profitability ratios, the company has a remarkably stable Gross Margin in the range of 28.00%-29.00%, but declining Operating and Net Margins. Operating Margin has fallen from 10.32% in FY 2012 to 8.83% in FY 2016, and the Net Margin has fallen from 6.87% in FY 2012 to 5.61% in FY 2016. It is not surprising that also Return on Assets, and Return on Equity ratios have both declined also. Return on Assets has fallen from 6.10% in FY 2012 to 4.70% in FY 2016, while Return on Equity has declined from 16.55% in FY 2012 to 13.62% in FY 2012. So overall there is a weakness in the Profitability.

Activity or Efficiency ratios show an overall strong efficiency as the Cash Conversion Cycle has fallen from 100.88 days in FY 2012 to 80.57 days in FY 2016, Receivables and Inventory Turnover have both increased, while Fixed Assets Turnover has slightly decreased, and Asset Turnover seems rather stable in the range of 0.82-0.89 for our 5-year period of analysis.

Liquidity and solvency ratios show that the company has good liquidity with a Current Ratio of 1.42 for FY 2016, and a Quick Ratio of 0.79. Both these liquidity ratios were higher in the FY 2015, but the change is a minor one. Debt/Equity ratio is in a declining trend, with a reading of 0.43 for FY 2016, while the Financial Leverage has a reading of 2.95 for FY 2016, the highest level for our 5-year period of analysis. This is a mixed picture, as low Debt/Equity ratio makes the stock less risky and increases its financial health, but on the other hand, the increased Financial Leverage adds more volatility in the future profitability of the company.

Cash Flow Ratios are very important both as a key metric of operating performance and for valuation purposes. The company shows a positive Free Cash Flow/Net Income ratio has a rising trend, with a reading of 1.59 for FY 2016, higher than the previous reading of 1.52 in FY 2015, and at the highest reading for the 5-year period of analysis. These strong cash flows are a very positive factor of strong economic performance.

Growth for the company is a matter of concern as the company has 5-year average growths for Revenue, Operating Income, Net Income and EPS with figures of -2.29%, -8.54%, -9.73% and -8.61% respectively. The expected EPS Growth for next 3-5 years is 6.20%, and the stock has a PEG ratio of 3.32.

Analyst Recommendation and Historical Surprises:

The stock has a current recommendation of Buy with 1 recommendation of Strong Buy and 7 recommendations of Hold, while for the past 4 quarters the stock has 4 positive EPS surprises with an average surprise of 10.925%.

Valuation Analysis:

On a relative valuation analysis shares of ABB, Ltd (NYSE: ABB) seem relatively undervalued compared with the average price ratios of its industry and S&P 500 for Price/Earnings ratio, and Price/Book ratio. For the Price/Sales ratio, the stock seems relatively overvalued, while for the Price/Cash Flow ratio the stock seems relatively undervalued compared to the average ratio of its industry only.

Relative valuation table 2

Technical Analysis:

The technical analysis of the stock shows a very strong uptrend on the daily chart as the stock is trading above its 50-day moving average with a reading of 24.07, and the 200-day moving average with a reading of 23.60, which are both rising. The stock has moved up around 10.15% from the support level of $22.65-$22.80, forming a double bottom. There is strong support at the level of $24.55 and $24.80, and resistance at the level of $25.20 and $25.50. Daily Bollinger Bands for the stock are currently at 24.51 and 25.32, and any break above the upper Bollinger Band may consider positive for the continuation of the uptrend. The strength of the trend as measured by the ADX(14) indicator is very strong with a reading of 37.28, while the readings of +DI and –DI are 32.70 and 19.28 respectively, indicating that the current dominant trend is an uptrend. The stock has a recent bearish negative MACD crossover and seems to be overbought as the readings of Full Stochastics (14,3,3) and Williams% (R14) are at 75.49 and -19.72 respectively. RSI(14) indicator has a reading of 63.01, which is not at overbought levels. Looking at a longer time frame, the weekly chart, the stock is also having a bullish chart, with a strong uptrend, a rising MACD indicator, rising 50-period and 200-period moving averages, and has reached overbought levels as measured by the readings of Full Stochastics (14,3,3) and Williams% R(14) indicators with readings of 92.50 and -5.91 respectively. The previous high price of $25.83 is pivotal for the continuation of the uptrend.

3.Esterline Technologies Corporation (NYSE:ESL)

The stock is classified in Sector: Industrial Goods, Industry: Diversified Machinery.

Key Financial Information:

Our 3^rd stock is Esterline Technologies Corporation (NYSE:ESL), with a market capitalization of $2.8 Billion, which is interesting enough as we have a stock with a very small capitalization, a stock with a large capitalization and a stock with a medium capitalization. Esterline Technologies Corporation is a mid-cap company.

Fundamental Analysis:

Again we will use a 5-year period of fundamental analysis for the years 2012-2016. The company has an almost flat trend for Sales, a declining trend for Gross Income, a declining trend for Net Income for the past 3 consecutive years, and an inconsistent trend for EPS(Basic and Diluted) with a decline in the FY 2014 and FY 2015 and an increase in FY 2016. EBITDA also has a similar trend with an uptrend in FY 2013 and FY 2014 and a downtrend in FY 2015 and FY 2016. The Balance Sheet is moderate to strong, with a rising trend for Cash & Short Term Investments which for the FY 2016 the reading of

Financial Ratios Analysis:

Profitability ratios show a declining trend for Gross Margin, Operating Margin, and Net Margin for the 5-year period of analysis, but in FY 2016 there was an increase in the Net Margin to 5.10% from 4.99% in FY 2015. There is a declining trend for   Return on Assets and Return on Equity ratios for the majority of the 5-year period, but also an improvement for both ratios in FY 2016 compared to FY 2015. Return on Equity improved to 6.35% from 5.45%, and Return on Assets improved to 3.35% from 3.17%.

Efficiency ratios show a mixed analysis. The Cash Conversion Cycle has increased overall from 152.67 days in FY 2012 to 167.34 days in FY 2016 signaling a weak operating performance. And while Receivables Turnover and Inventory Turnover have both declined, on the other hand, Fixed Assets Turnover and Asset Turnover have both improved.

Liquidity and Solvency ratios show very high liquidity with a Current Ratio of 2.95 for FY 2016 and a relevant Quick Rati of 1.72. Also, the Debt/Equity ratio although it was lower in the previous years and has increased in FY 2016, it's reading of 0.53 is considered relatively low and not excessive. Financial Leverage which was lower in the previous years has increased in FY 2016, a factor which can add further variability in the profitability of the company.

Cash Flow growth is a concern for the company with negative growth for the past 3 consecutive years. As for the 5-year average growth for Revenue, Operating Income, and EPS the readings of 4.60%, -1.69%, -5.48% and -5.09% respectively show that there are growth concerns as only Sales have a positive average growth rate. The expected EPS Growth rate for next 3-5 years is 11.14%, and the current PEG ratio is 1.69.

Analyst Recommendation and Historical Surprises:

The stock has a recent Buy recommendation from analysts, with 2 Strong Buy recommendations, 1 Hold recommendation and 1 Underperform recommendation. In the past 4 quarters, the stock had 3 out of 4 positive EPS surprises, with an average EPS surprise of +29.12%.

Valuation Analysis:

The stock seems relatively undervalued compared to the average price ratios of its industry and S&P 500 for Price/Earnings ratio, Price/Book Value ratio, and Price/Cash Flow ratio, and relatively overvalued only for Price/Sales ratio.

Relative valuation table 3

Technical Analysis:

Technical analysis on the daily chart is bullish for the stock, as the current price is above the 50-day moving average at 88.10 and 200-day moving average at 90.46. Both moving averages are rising, while the strength of the trend measured by the ADX(14) indicator is very strong with a reading of 38.36, while the +DI reading of 24.85 is above –DI reading of 9.47, indicating that current dominant trend is an uptrend. The stock has a rising MACD indicator, which recently however made a bearish crossover, and has reached overbought levels as indicated by the figures of Full Stochastic (14,3,3) indicator and Williams% R(14) indicator with values of 78.84 and -22.41 respectively. RSI (14) indicator has a current value of 61.98, which is not at extreme overbought levels. There is strong support at the level of $92.50 and $90.00, and strong resistance at the level of $95.50, $100.30 and $102.50.

The weekly chart is also bullish on the stock with an uptrend, a rising MACD indicator with a recent bullish crossover, rising 50-period, and 200-period moving averages, and again a dominant uptrend as indicated by the readings of ADX(14) indicator.

Overall Investment Conclusion:

These 3 stocks show positive momentum and have nice fundamental trends and financial ratios. Although there are concerns for growth and cash flows for some of them and some other financial ratios, the majority seems undervalued on a relative valuation basis and can be considered as candidates for inclusion in a portfolio with a focus on industrial stocks.

Notes: Financial data used for analysis is from Morningstar.com, cnbc.com, Zacks.com, stockcharts.com.

The author has not any stocks of mentioned companies in any portfolio, at the time or writing this financial analysis.