What happened
In one of the hottest days for stocks in years, shares of Trex (TREX 3.41%) and Generac Holdings (GNRC 0.98%) surged even higher than the market. The S&P 500 is up almost 5% at 3:14 p.m. ET today, while Trex and Generac shares are up 11% and 12%, respectively. Yet while these beaten-down industrials bounce back, shares of Chart Industries (GTLS 0.02%), which had been a rare moneymaking stock for most of 2022, are now down more than 9% after opening down almost 20%.
So what
Let's break things down for each of these companies a little bit. Trex and Generac have both faced some very negative sentiment, along with tough results and concerns about their near-term outlooks recently. Chart, on the other hand, has seen the energy crisis in Europe, along with focus on clean energy, drive both its results and interest in its stock.
NYSE: TREX
Key Data Points
Trex reported financial results recently, and revenue and earnings both collapsed, wrecking Trex's stock performance even further. Since Trex's main product is sold to homeowners, the weakening housing market, along with macro concerns that the economy could tank, has scared investors away. Before today's big bounce, its shares were down more than 70% so far this year.
Generac similarly reported weak results recently, with a 15% decline in sales, and 26% lower earnings per share. The weakening macro environment, with inflation and rising interest rates, is pressuring Generac buyers, including industrial users and homeowners interested in its power backup products. It also reported a customer in the clean energy space has filed for bankruptcy, and it took almost $40 million in warranty-related costs in the quarter. Add it all together, and investors have been very downbeat.
NYSE: GNRC
Key Data Points
For Chart, the past couple of years have been very good for a company involved in liquified natural gas and other cryogenic gas processing technologies. Management has proven really good at expansion, making a number of small acquisitions to expand its core offerings, including increased geographical reach, more high-margin services revenue, and expanding into clean energy markets. The result had made Chart one of the best-performing stocks of the year; through Nov. 8, shares were up more than 50% in 2022, against the S&P 500's 20% decline.
But after market close on Nov. 8, the company announced plans to acquire Howden. The deal will be funded with a lot of debt and preferred equity, and the market clearly didn't like it. At this writing, shares are down 42% in the past two days of trading.
NYSE: GTLS
Key Data Points
There's also the macro news behind today's huge up day for most stocks. Today's inflation report came in much better -- or maybe much less worse -- than expected. As a result, investors flocked into stocks, especially beaten-down ones like Trex and Generac. Both are proven, solid, companies with long track records of financial success. If inflation returns to levels the Federal Reserve wants to see more quickly than expected, that's very positive for the economy, as opposed to the expectations the Fed will keep rising rates even if it sends the economy into recession. Many stocks have traded as if a recession is a given, these two included.
For Chart, investors clearly have a different view of its situation. Taking on billions in debt in a rising interest rate environment, and potentially right before a recession, could undercut demand for products and send investors selling. This turned Chart from being a big winner this year to just another money-loser for investors.
Now what
Investors shouldn't build their thesis on just one or a few days of trading action. It's clear that the market was very positive in broad terms today, while the specifics of Chart's deal were worrisome enough to see its shares falling on one of the best trading days of the past decade. Let's remember that shares of Generac and Trex are still down more than 60% this year, so there's still a lot of negative sentiment to be had. And rightly so; both operate in cyclical industries, and demand for their products could be relatively weak in the near term.
But investors shouldn't buy stocks for short-term results. In the case of these two, Trex's long-term results as a business and a stock speak loudly: It's been a market beater, and my expectations are that it will, and today's price looks attractive if you buy and hold through the downside of the industry cycle until things recover.
Generac has been a solid performer as well, but it faces disruption from renewable energy and energy storage technologies; it's making a pivot, but is playing defense and could struggle to be the same market beater it has been in the past.
For Chart, I have more faith in its board and management team than the market does. They have demonstrated for years they're good acquirers, and I think this sell-off has created an opportunity to buy a great company at a reasonable price.
