Pilot training and simulator company CAE (CAE -0.09%), design software expert Autodesk (ADSK -0.74%), and machine vision leader Cognex (CGNX -0.67%) are very different companies. However, they all have one significant thing in common: their shares are down sharply in recent months. In addition, they are all now arguably great additions for 2022. Here's why the stocks have dipped and why it's time to look at buying them.
CAE acted when the going got tough
With commercial flight departures still significantly below 2019 levels due to the pandemic and a resurgence of COVID-19 cases, this may have hurt stocks like CAE which sells simulators and pilot-training services. Fewer flights means less need for crews to fly them.
However, there's actually a pilot shortage coming -- and as Boeing's latest pilot and technician outlook states, that shortage was looming even before COVID-19. The pandemic has accelerated this trend as many older pilots took retirement, junior pilots left to pursue alternative careers, and aspiring pilots delayed training.
So the need to retrain rusty pilots should stimulate demand for more flight simulation equipment like the kind that CAE provides. Moreover, the pilot industry is shifting to more digital formats. As Boeing notes, "Flight training scheduling will continue to be challenging as surges in air traffic demand lead to large numbers of pilot recalls and hiring."
It's all music to the ears of CAE, not least because its management took advantage of the pandemic to consolidate the industry through acquisitions, including its $1.1 billion acquisition of L3Harris Technologies' military training business in 2021. Further acquisitions include Textron's training and simulation business for $40 million in 2020 and now an agreement to buy Sabre's flight and crew optimization business in 2022 for $393 million.
As the aviation industry recovers, CAE's growth opportunity will build, and the excellent work done on acquisitions will bear fruit.
Autodesk is still a growth stock
What do you do when you like a company's long-term growth prospects but think its near-term guidance is too aggressive? Unfortunately, that's the quandary that faced many investors with Autodesk in 2021.
Management's target of $2.4 billion in free cash flow (FCF) for fiscal 2023 looked aggressive at the start of the calendar year. And it looked even more aggressive after management reduced its fiscal 2022 FCF guidance from a range of $1.575 billion to $1.65 billion down to a new range of $1.5 billion to $1.575 billion in August. Most recently, that guidance has dropped to a range of $1.42 billion to $1.46 billion.
Moreover, management now also talks of a $100 million to $200 million cut to its fiscal 2023 target thanks to supply-chain issues and inflationary pressures. That's pretty much the reason the highly rated stock fell in 2021.
However, now that management has talked down guidance and the dust is starting to settle, the stock is starting to look attractive again. Moreover, Autodesk has underlying growth opportunities that should drive earnings for years to come. This includes digitizing its core software products, enabling designers to more easily collaborate in the cloud. Management also plans to address the challenge of bringing non-paying users into compliance.
Even if Autodesk misses its fiscal 2023 target by $200 million, it will generate $2.2 billion in FCF and will trade on 28 times FCF based on the current price. That's a reasonable valuation for a stock growing sales at a mid-teens rate.
Cognex Corporation can bounce back in 2022
In November, the machine vision company fell afoul of investors following a disappointing third-quarter earnings report. The company was hit by a combination of supply-chain constraints, weakness in consumer electronics orders, and increased costs relating to deployment of its systems to a large logistics customer. The result was a double-digit fall in the share price on the earnings release.
That said, it's essential to keep an eye on the company's long-term outlook. For one thing, management believes that the logistics customer could place multiple orders with Cognex, making up for recent challenges. Meanwhile, an expected bounce in light-vehicle production in 2022 is likely to spur more sales to that sector.
Further, consumer electronics orders are always lumpy and unpredictable from year to year. If the semiconductor shortage eases, then it's likely that consumer electronics companies will accelerate new product development next year -- which would be good news for Cognex's automotive and consumer electronics sales.
All told, there's every possibility Cognex could have a strong year, and that makes it one of my favorite industrial stocks for 2022.