Manitowoc (NYSE:MTW) has emerged as one of the top-performing stocks in the construction-equipment industry this year, having gained 22% year to date and roughly 40% over the past one year, as of this writing. That handily beat the market as well as peer stocks.

MTW Chart

MTW data by YCharts

Though Manitowoc shares have cooled down considerably over the past couple of months -- losing nearly 13% during the time frame -- there are good reasons to believe that there's plenty of upside potential left in the stock. Here are three such reasons.

1. Global leader in a hot market

We have enough evidence of the U.S. construction markets picking up steam this year. Take a look at the American Institute of Architects' Architecture Billings Index, or ABI, for instance. ABI indicates where non-residential construction spending activity could be headed over the next nine to 12 months. A score above 50 implies a rise in billings (for design services) at U.S. architecture firms, thereby reflecting greater construction activity. Now consider this: After rising steadily for months, ABI scored 55.8 in July to hit its highest level in nearly seven years.

Dodge Momentum Index July

Source: McGraw Hill Construction

Likewise, McGraw Hill Construction's Dodge Momentum Index, another barometer for non-residential projects, gained 16.5% year over year, in the month of July. The Index has climbed steadily over the past few years, as evidenced by the graph on the right. Residential construction is also on an upswing: July housing starts grew 16% sequentially and 22% year over year.

The momentum in these indicators indicates strong chances of further pick up in U.S. construction activity in near months. This has, by far, been the biggest reason for enthusiasm among Manitowoc investors -- The company gets nearly 45% of its crane sales from the North American market.

At the same, Manitowoc's strong global presence should allow it to exploit opportunities in high-potential regions, such as Asia-Pacific and Latin America. Not many know that Manitowoc is the global leader in most crane product categories, including tower cranes, crawler cranes, rough-terrain and all-terrain cranes, and boom trucks. In a recently released report, Technavio projects the global crane market to grow at a compounded rate of 7.29% between 2013 and 2018. As a leader in the crane market, Manitowoc is well poised to play the upturn.

2. Parallel business with high growth potential

Impressive performance from Manitowoc's foodservice equipment business has also fueled investor optimism this year —The division reported 7% and 10% higher year-over-year sales and operating earnings, respectively, during the six months through June.

Foodservice has a lower share in Manitowoc's revenue, but plays a bigger role in driving its profits. Take a look at the share of each business in the company's revenue and operating earnings in 2013.

Mtw Business Segments

Source: Manitowoc 2014 Q1 Fact Sheet

While construction equipment is a cyclical industry, foodservice is comparatively resilient and stable. Foodservice thus plays a crucial role in offsetting weakness in Manitowoc's crane sales during periods of slowdown. Moreover, foodservice has consistently delivered nearly double the crane division's operating margin, which is also one of the major reasons why activist investors are pushing Manitowoc to split into two separate companies.

Whether Manitowoc will split is anyone's guess, but the good news is that its foodservice business looks poised to grow bigger for three reasons:

  • The business now spans 24 brands covering a wide array of products, including ice machines, fryers, beverage dispensers, ovens, and induction. Each of those brands ranks either first or second in the world in its respective product category.
     
  • Manitowoc's sales are tied closely to the health of the restaurant industry. The National Restaurant Association projects industry sales to hit a record of $683.4 billion this year. The restaurant industry has progressed rapidly over the past few decades, as evidenced below.
  • Nra Salesgrowth 

    Source: National Restaurant Association  

  • Restaurant chains are expanding aggressively. For instance, Manitowoc's key customer, McDonald's plans to open 1,500 to 1,600 new restaurants this year, aside from renovating 1,000 existing restaurants. Since half of Manitowoc's foodservice sales come from replacement demand, renovations by restaurant chains is an equally big revenue driver as new openings. 

Innovation and solid product lineup

How does Manitowoc intend to exploit the massive growth opportunities highlighted above? Through its aggressive expansion plans and innovative leadership.

Advanced products have played a major role in Manitowoc's growth so far. Products launched over the past five years contribute nearly 54% of the company's total sales today. But Manitowoc has an even bigger objective in mind.

Manitowoc New Product Percent Sale

Source:  Company presentation at Robert W. Baird Industrial Conference, November 2013

Manitowoc is already on its way to achieving that 80% target. After introducing 40 new products last year, the company hit a milestone this past March by unveiling 10 crane products with next-generation technology at the triennial international exhibition, ConExpo 2014. Industry experts peg the launch to be a game changer for Manitowoc.

Timely launches of superior products count among Manitowoc's biggest strengths, and should continue to propel the company forward even as it strives to remain at the forefront in its industry. While no business is risk free, there are enough catalysts to suggest that Manitowoc stock could be headed higher going forward. 

 

Neha Chamaria has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.