Take a Look at This Rising Sector for Your Portfolio

Providers of flow technology equipment and systems are largely on track for improved performances this year and in 2014. It is a good bet that their stock prices are likely to follow.

These companies manufacture processing products used by industries such as food and beverages, oil & gas, and wastewater treatment, among others. They serve a wide range of end markets that are mostly poised for increased earnings and are likely to spend on capital projects. While these positive trends persist, flow technology companies' prospects ought to remain favorable. Let's highlight several sector participants, starting with a top selection, SPX (NYSE: SPW),.

Poised for rapid EPS growth
SPX operates a flow technology segment that provided 53% of 2012 sales, according to the company's annual report. The unit supplies the food/beverage, oil &gas, power generation, and industrial flow markets. The company is experiencing rising demand overseas from the energy and food industries.

Moreover, SPX serves the power-generation market. Through its thermal segment, it is a major producer of power transformers. This power transformer business is high margined, and is an important component to review when analyzing the company's overall earnings trend.

In fact, SPX is benefiting from last year's expansion of a power transformer facility. Additionally, it appears the company's margins are gaining ground thanks to restructuring and other cost cutting initiatives.

Resulting margin expansion is helping SPX to outperform expectations, and the earnings per share outlook is solid. The only challenge, seemingly, is declining sales from its ClydeUnion original equipment pump business.

Some of the most attractive features of SPX as a long-term investment are:

  1. It is focused on new-product development, a factor that should allow it to maintain or grow its market share.
  2. SPX is targeting expanded scale globally by way of organic projects and acquisitions. This is particularly within its flow technology business.

Based on these factors, SPX stock is a good selection for portfolios with a long-term outlook.

Increasing sales and margins
A second, even larger, flow technology company to consider is Flowserve (NYSE: FLS  ) . The company's flow control systems are utilized by a wide range of industries, led by oil & gas, chemicals, and power generation.

EPS improved to $1.51 during the first six months of 2013, up from $1.22 last year. This positive trend is likely to persist, behind spending across the globe on gas and chemical projects.

The favorable outlook is reflected in Flowserve's bookings, currently on the rise, particularly in its flow control division, where they were recently up about 10% according to the company's latest 10-Q. Furthermore, Flowserve is achieving gross margin improvements on a better mix of products and cost containment measures.

Flowserve, like many industrial companies, is dependent upon the timing of projects. That said, late 2013 should bring an increased number of projects. Plus, the company is taking initiatives to expand its presence in overseas regions, such as Asia, where opportunities are available given economic growth in the region.

In sum, Flowserve is likely to be a beneficiary of upturns in its key end markets. The company's EPS outlook is very favorable approaching late 2013 and 2014.

Thus, this may be a good opportunity to add Flowserve to a long-term focused portfolio.

Lastly, a growth company 
The third example of a thriving flow technologies company is IDEX  (NYSE: IEX  ) . This one is situated in a unique set of end markets, namely fluid & metering, health & science, and fire & safety/diversified.

Of these three segments, the first two are performing rather well in terms of sales and margins, allowing the company to post better results as a whole. Second-quarter EPS improved to $0.76, from $0.67 the prior year.

Catalysts playing a role in IDEX's earnings include:

  1. Its fluid & metering segment is benefiting from a rebound in the liquefied petroleum gas market and rising global truck manufacturing.
  2. Also within the fluid division, there are food-processing market opportunities in overseas markets.
  3. The health & science unit is seeing gains from sales of scientific products, strength in orders, and acquisitions.

One aspect that makes this a growth company is its spending on acquisitions that are designed to build upon existing businesses, as well as boost its foothold in higher-growth end markets and geographies. This, along with product development, ought to allow it to thrive while market conditions are conducive to growth.

Accordingly, growth-focused investors may want to consider IDEX for their portfolios. The shares, recently at an all-time high, have positive momentum.

Summary
The best stock among these three, as stated, appears to be SPX. That company is involved in numerous expanding end markets and is initiating a sound long-term expansion strategy. 

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