It was a remarkable year for the industrial sector. The S&P Industrial Total Return Index soared 35% alongside a 26% rally in the S&P 500. Looking beyond this broad overview, however, there were a number of specific surprises for investors.
To get more insight into this industry, we asked our top analysts to reveal their thoughts on the most surprising industrial stories of 2013.
Isaac Pino: The manufacturing industry is flooded with exciting trends right now, but investors swept up in a wave of "game-changing ideas" in 2013 might have missed the boat to multi-bagger returns.
The story of the restaurant supplier Middleby Corporation (MIDD -0.79%) is a case in point. At first glance, Middleby's industrial ovens might sound ordinary and mundane, but the company's performance has been anything but in recent years. Shares of Middleby climbed 91% in 2013, making it one of the best-performing large stocks in the manufacturing industry. No small feat, to be sure, but for this operation it's just another day in the kitchen: Middleby is an 11-bagger stock over the past five years, implying gains of over 1,000%.
By now, you're probably saying, "Past performance does not predict future returns", or even, "Maybe I missed the boat on Middleby, too." Perhaps. But what's most surprising about Middleby is its consistency. Year after year, the company's grown both revenue and earnings at impressive rates: Since 2005, revenue and earnings per share expanded at an average annual rate of 36% and 31%, respectively. That's enough to make a growth investor salivate.
And who's to say Middleby can't keep cooking up growth? Middleby added a few new ingredients to the mix during the past year by acquiring several high-quality kitchen brands. The management team's voracious appetite introduced Viking Range ovens, Celfrost refrigeration products, and Market Forge steam cooking equipment to the Middleby portfolio. Further, Middleby's clientele – ranging from Chili's to Chuck-E. Cheese's – is a "who's who" of the restaurant industry, and Middleby has established loyal relationships by offering a "no-quibble" money-back guarantee on its products.
On second thought, maybe Middleby's performance in 2013 should come as no surprise: Management's crafted a recipe for running a successful business, and shareholders are savoring every last morsel.
Daniel Sparks: Going into 2013, investors questioned Tesla Motors' (TSLA 11.79%) audacious goals. In a company blog post, Tesla CEO Elon Musk had summed up the company's long-term plan like this:
- Build sports car.
- Use that money to build an affordable car.
- Use that money to build an even more affordable car.
- While doing above, also provide zero-emission electric power generation options.
The blockbuster car Tesla needed was the Model S. While deliveries for the vehicle had begun before 2013, the car hadn't proven itself in the market in a big way yet. Small levels of production kept investors wondering: Will this luxury sedan live up to the hype? While Tesla did build a sports car (the Roadster), it wasn't the blockbuster car it would need to prove to the Street that it was capable of executing on the second and third parts of its plan. How could a start-up in Palo Alto compete with the big auto companies that have existed for decades? Producing only hundreds of units of the Roadster per year, the volume was hardly enough to prove Tesla could make the kind of money it would need to eventually bring "an even more affordable car" to market.
It did. Not only did the Model S receive a breathtakingly exhaustive list of accolades in 2013, but Tesla also managed to deliver a whopping 22,450 vehicles.
Not to mention Tesla's rapid international expansion with both Model S deliveries and its game-changing Supercharger network.
Tesla stock soared 350% in 2013 as the market realized this electric-car manufacturer is here to stay. One part perfect execution, one part Elon Musk magic – Tesla's 2013 sudden assault on the auto industry will go down in history.
Steve Heller: As a 3-D printing analyst, one of my favorite industrial story lines of 2013 was how General Electric (GE -3.51%) announced plans to use 3-D printing for large-scale manufacturing. The industrial giant intends on 3-D printing up to 45,000 fuel nozzles a year for its upcoming Leap jet engine using a technology called selective laser sintering, or SLS. One of the benefits of SLS technology is that invites an unrivaled amount of creative freedom into the design process compared to conventional manufacturing. The reason being, 3-D printing manufacturing requires zero tooling, meaning it excels at creating complicated designs with intricate geometries.
Ultimately, GE's 3-D printing plans are an important milestone for the 3-D printing industry at large because it changes the conversation from 3-D printing primarily being a prototyping technology to one that may become an increasingly viable option for full-scale manufacturing. However, 3-D printing supporters should be well aware that it won't be for a number of years until 3-D printed fuel nozzles hit the skies, despite the fact that GE will be investing tens of millions toward advancing the technology in the meantime. At the end of the day, GE will be a great name to watch in 2014 because it's leading the 3-D printing charge. As a result, a 3-D printed fuel nozzle could be made as one finished part, whereas a conventionally manufactured fuel nozzle would have to be made into over 20 different parts and take up valuable resources during the assembly process. Thinking in terms of the operational savings across GE's massive manufacturing footprint that 3-D printing could one day offer, it's easy to get excited about the billions in potential savings GE could stand to realize over a decade.
Tamara Walsh: In many ways, 2013 proved a record year for Ford Motor (F -0.08%), which is why it's one of my favorite industrial stocks of the past year. Ford's annual profit for fiscal 2013 was the best in more than a decade, with a pre-tax gain of $8.6 billion on the year. Ford also celebrated year-over-year market share gains in the U.S., South America, and Asia Pacific Africa regions.
Other bright spots included higher overall deliveries versus the prior year, and record annual cash flow of $6.1 billion. Ford closed the year with $24.8 billion in cash, according to The Wall Street Journal. In addition to being an industry leader in the global auto market, Ford rewards investors through reliable dividend payouts. The stock is up more than 16% over the past year and currently boasts a dividend yield of 3.18%. China was a particularly strong market for the automaker over the past 12 months, helped by impressive sales of Ford's EcoSport and Kuga models. In fact, Ford was able to increase sales in China by as much as 50% in 2013. As a result, Ford generated a pre-tax profit of $106 million during the fourth quarter, which is its best performance in the Asia-Pacific-Africa region to date.
