One of the hardest decisions as an investor is whether to buy a stock that has just had a major run-up. At our core, we all want a good deal. And buying a stock at a higher price today than it was, say, just a few months ago seems counterintuitive. But this mentality leads to missing out on compound gains over time.
There's a major difference between chasing a stock in the hope it will go higher and buying a stock at a higher price because it is still a good value. Illinois Tool Works (ITW 1.93%), Hexcel (HXL 0.63%), and Fluence Energy (FLNC 6.09%) fall into the second category. All three stocks have done very well in recent months and still have what it takes to continue delivering strong returns. These three Motley Fool contributors explain why.
Image source: Getty Images.
ITW has made bold promises to investors
Daniel Foelber (Illinois Tool Works): As of market close June 15, Illinois Tool Works stock was already up 11.2% so far this month. A favorable jobs report and investor optimism about the economy are great news for the company, which is involved in several key parts of the industrial economy. So it's no wonder that ITW and other cyclical stocks are soaring.
NYSE: ITW
Key Data Points
But what separates ITW from other top industrial stocks is its excellent leadership, diversified business, and strong margins. By 2030, it aims to grow its operating margin to 30%, its earnings per share (EPS) by 9% to 10% annually, and its dividend by 7% per year.
Last year, its operating margin was 23.8%, diluted EPS was $9.77, and the quarterly dividend was $1.31 per share. If we extrapolate those 2022 figures based the company's targets and assume linear growth, we can see that it should grow its operating margin by about 0.8 percentage points per year, diluted EPS will more than double by 2030, and the annual dividend will increase to $9 per share by 2030.
|
Metric |
2022 |
2023 |
2024 |
2025 |
2026 |
2027 |
2028 |
2029 |
2030 |
|---|---|---|---|---|---|---|---|---|---|
|
Operating Margin |
23.8% |
24.6% |
25.4% |
26.1% |
26.9% |
27.7% |
28.5% |
29.2% |
30% |
|
Diluted EPS |
$9.77 |
$10.70 |
$11.71 |
$12.83 |
$14.05 |
$15.38 |
$16.84 |
$18.44 |
$20.19 |
|
Quarterly Dividend |
$1.31 |
$1.40 |
$1.50 |
$1.60 |
$1.72 |
$1.84 |
$1.97 |
$2.10 |
$2.25 |
Data source: Illinois Tool Works. Table by Author.
By providing a clear road map for investors to follow, ITW is holding itself accountable for future performance. So far, the company has done a phenomenal job delivering on its promises and rewarding investors with excellent returns.
It is also a Dividend King that has raised its payout for 52 consecutive years, a sign that investors can count on a steadily growing payout no matter the market cycle.
Add it all up, and ITW is a high-quality company worth owning for decades.
Boeing's CEO confirms the future is bright for Hexcel
Lee Samaha (Hexcel): This company's advanced lightweight composites are used across the aerospace sector, including on the major programs at Boeing and Airbus, such as the 737 MAX and the Airbus A320neo family of aircraft. Hexcel also sells its composites into the parallel markets of space and defense, and the industrial sector in general (including wind turbines).
Its composites offer a strength and weight advantage over metals, a key consideration for airplane design where reducing weight helps improve efficiency. The investment case lies in rapidly improving production rates at Boeing and Airbus and the increasing use of composites on newer and redesigned planes. Boeing CEO Dave Calhoun has confirmed that composites would be a big part of any new plane the company develops.
So Hexcel investors can look forward to robust and reliable growth over the medium term as Boeing and Airbus ramp up production and deliver on their multiyear backlogs. And they can expect a significant increase in Hexcel's content per airplane over the long term as the aerospace and defense industries increasingly use composites.
Lastly, the icing on the cake in the long term should come from increased use of composites in wind turbines and industry in general. Hexcel's growth is only getting started.
NYSE: HXL
Key Data Points
Put a charge in your portfolio with Fluence Energy
Scott Levine (Fluence Energy): With a nearly 13% rise over the past three months, the S&P 500 has delighted investors with its strong performance. Energy storage stock Fluence Energy, on the other hand, has achieved a notably more powerful feat, skyrocketing more than 57% during the same period. Since the company reported surprisingly strong second-quarter results in May, the market has taken note, and it's quite possible that it will continue to gain attention over the coming months -- and soar even higher.
It crushed analysts' expectations for $417.6 million in revenue, reporting second-quarter sales of $698.2 million. The company also upwardly revised 2023 revenue guidance from a range of $1.6 billion to $1.8 billion, to a range of $1.85 billion to $2 billion. And with $11.2 billion in its backlog, Fluence can expect strong sales in 2024 and beyond.
In its second-quarter report, Fluence said that it is going to be close to breakeven on the basis of adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) sooner than it had originally thought. It now projects to do so in the fourth quarter of 2023 instead of sometime in 2024.
Renewable energy investing involves more than solar and wind stocks. Fluence's battery energy storage systems are also an important part of the green power movement. According to Rystad Energy, an energy research firm, battery energy storage installations will have a 33% compound annual growth rate globally through 2030. For a leading battery energy storage system like Fluence, this provides a powerful opportunity.
