What happened

By now you've heard the news: vaccine-maker Moderna Inc. announced this morning that Phase 1 data on its mRNA-1273 vaccine against the SARS-CoV-19 coronavirus is looking promising, with the vaccine apparently "safe and well tolerated" among a group of 45 patients undergoing its clinical trial, and apparently able to elicit "an immune response of the magnitude caused by natural infection" among at least eight of them. If it passes Phase 2 and Phase 3 trials as well, the vaccine could prove effective at preventing infection with COVID-19.  

Investors like the sound of that a lot, and are bidding up shares of ... well, just about everything today. As of 2:30 p.m. EDT, the S&P 500 Index of companies is up well over 3%. Industrial companies are doing particularly well, with shares of N95 mask-maker 3M (NYSE:MMM) up 6.2%, construction company MasTec (NYSE:MTZ) rising 10.3%, and aerospace concern Textron (NYSE:TXT) doing best of all -- up 11.2%!

Arrow angles up on a green stock chart

Image source: Getty Images.

So what

It almost goes without saying these days that these stock price gains are not tied to anything specific to the companies whose stocks are enjoying the gains. I've scanned the newsfeeds, and there's no evidence of any news specific to 3M, MasTec, or Textron that would -- in and of itself -- explain the magnitude of the stock price gains they're presently enjoying. No earnings reports. No analyst upgrades. Not so much as a price target hike on Wall Street.

So how should investors react when stocks like these, enjoy unexplained price gains like these?

Now what

Actually, in all three cases I think investors can be pretty pleased with these gains because, while they may not be tied to any actual news, per se, today's rallies do have some basis in valuation.

Take MasTec for example: On the one hand, the stock has not been immune to coronavirus -- at all! Last quarter's earnings, in fact, declined 16% at the construction company. But even so, MasTec stock trades for just 6.4 times trailing earnings. In a market where the average S&P 500 stock costs more than 21 times earnings, that's cheap. And MasTec's earnings are of very high quality, with actual trailing free cash flow of $647 million actually 68% greater than reported net income.

The story is similar at Textron, where earnings plummeted 72% in Q1, but the stock is nonetheless selling for a cheap 8.1 times trailing earnings. Textron's free cash flow situation isn't as good as what we see at MasTec -- just $505 million in trailing FCF versus reported profits of $686 million, according to data from S&P Global Market Intelligence. But even so, Textron stock is selling for less than 11 times free cash flow, which doesn't look expensive at all.

And 3M? That may be the best story of all. Although sales growth wasn't great at 3M last quarter, it was at least positive, and earnings growth of 45% year over year easily exceeded expectations. Although the priciest of these three industrial companies, 3M still sells for a sizable discount to the broader market at just 16 times earnings, and its free cash flow -- $5.6 billion versus a reported $5 billion in GAAP net income -- makes the company a standout.

At 14x FCF, with a dividend yield of greater than 4%, 3M stock shouldn't have to show much growth at all over the next few years to make its stock an out-and-out bargain.