Sometimes, a stock may look compelling but isn't quite worth buying...at least not yet. And right now, many industrial stocks in particular are experiencing some headwinds that make them worth keeping an eye on so you're ready to jump in if those issues get resolved.
iRobot: Can it grow?
The long-term trends are unmistakably working in the company's favor. The Roomba maker is the undisputed leader in home robotics, offering robotic mops, pool cleaners, and now even lawn mowers in addition to its best-selling robotic vacuum.
Even as the market leader, it barely scratches the surface of the broader markets in which it operates. For example, although the company commanded an impressive 52% of the roughly $4 billion market for high-end robotic vacuums in 2018, the market for all vacuum cleaners globally was more than $13 billion, so it has plenty of room to improve its market share.
Similarly, it has only just begun to sell robotic lawn mowers. An April report by Research and Markets indicates that the global market for lawn mowers is expected to grow at a compound annual rate of only 5%. But the same report notes that iRobot's entry into the space is "likely to drive the demand for innovative lawn mower systems in the market." In other words, the sector overall may be fairly slow-growing, but iRobot is poised to rapidly grow its share of that market.
Recent concerns about competition and ongoing trade war woes have conspired to sink the stock, which has lost one-third of its value so far this year. If the trade issues can be resolved quickly, the stock is poised to jump in response, and it still looks like a long-term buy. That makes iRobot one for your watch list this month.
Ford: waiting with bated breath
After Ford showed a lot of promise a decade ago by being the only Big Three automaker to escape the Great Recession without going into bankruptcy, its stock has been, quite frankly, a dud. Over the last 10 years, its share price has increased only 18.3%, compared with 174.5% for the S&P 500. At least it pays a decent dividend, currently yielding about 6.6%. When you factor in the dividend, it's returned a still-unimpressive 69% over the last 10 years.
But investors may want to follow Ford in October. Primarily, they should wait to see the results of the UAW strike at Ford's rival General Motors. The outcome of that monthlong dispute will likely affect Ford. If the eventual contract results in big concessions from GM, Ford's stock is likely to sink on the assumption that it, too, will have to make big concessions in its subsequent negotiations. But if GM and the UAW agree to terms that are seen as favorable to the company, Ford's stock could respond by rising.
Ford has implemented cost-cutting programs and has a slate of new vehicles coming this year and next. If the share price drops further, resulting in an even higher yield, this could be an excellent time to take a chance on the beleaguered automaker. Keep an eye on the stock this month to see how it reacts.
Oshkosh: a beaten-down truck maker
Specialty truck maker Oshkosh soared in anticipation of the possibility that Donald Trump's election and a Republican sweep of Congress would result in three big-ticket items that would help the manufacturer:
- A promised infrastructure bill, which would increase domestic construction activity, leading to demand for Oshkosh's cement mixers, telehandlers, and other construction vehicles.
- A concrete border wall, which would similarly benefit Oshkosh.
- Increased defense spending, leading to more Pentagon purchases of Oshkosh military vehicles like the Mine-resistant All-Terrain Vehicle (M-ATV).
But things didn't work out as planned. The infrastructure proposal never materialized, and the border wall remains mostly unbuilt. An increase in defense spending did materialize, but the military handed Oshkosh an unexpected letdown in March by purchasing fewer vehicles than expected for its 2020 fiscal year.
Oshkosh's stock pulled back sharply in 2018, and although it's rebounded a bit since, the company's P/E ratio is still less than 10. That's a five-year low for the truck maker, which reports earnings on Oct. 30. It's worth keeping an eye on Oshkosh to see what happens.
The industrial space is full of opportunities, but not all of them may be buys right now. So smart investors should keep potential outperformers like iRobot, Ford, and Oshkosh on their watch lists this month.