The industrials sector has been in a period of contraction for most of 2023 and 2024, with sharply mixed performance among different companies during that time. Some firms have thrived, like power management giant Eaton Corp. plc (NYSE: ETN), with its nearly 50% returns in the year leading to December 13, 2024. On the other hand, even some of the sector's stalwarts have seen share prices decline during this period as well. The Boeing Co. (NYSE: BA) is an example on the latter end of the spectrum; its stock has dropped by about a third in the past year.
With the prospect of a new administration and approach to important industry considerations like the role of regulation and corporate taxes, some investors have grown optimistic about the near-term prospects for industrials companies. Could it be time to consider a shift toward industrials firms? If so, pay close attention to the three companies below. These are likely to be unknowns for many investors without ample sector experience, but they could be poised for growth in the new year.
MRC Global: Resilient Cash Flow Despite Tepid Earnings
MRC Global Inc. (NYSE: MRC) distributes a variety of infrastructure products, including pipes, fittings, and valves for use in extreme operating conditions. The broad application of MRC's product line makes the company resilient in the face of some market downturns and should provide a boost when energy and infrastructure projects take off.
In November, MRC announced that the results for the third quarter 2024 were somewhat mixed. Adjusted net income attributable to common shareholders declined slightly year-over-year to $19 million, and sales fell 4% to $797 million over the same period. However, MRC remains capable of generating significant cash flow; despite these soft top- and bottom-line figures, the firm created an operating cash flow of $96 million for the quarter. With $197 million in cash flow generated in the first three quarters, the company nearly completed its goal of $200 million generated in 2024 a quarter early.
Given the strength of MRC's cash flow—and the fact that the company anticipated a lackluster quarter due to a slowdown in U.S. oilfield activity, among other factors—investors actually reacted positively to the company's earnings, with the share price briefly spiking in early November. MRC's capacity to generate cash flow should position it well to capitalize on opportunities for growth when the industrials sector more broadly picks up speed again.
H&E Equipment Services: Dividend and Value Prospects Despite Challenges
An important name in the business of selling and servicing construction and industrial equipment and related parts, H&E Equipment Services Inc. (NASDAQ: HEES) currently enjoys a Buy rating from four out of six analysts. For investors, H&E is an attractive dividend proposition, as the company has a dividend yield of 1.97% and a sustainable payout ratio of just under 28%. Its most recent payment of $0.275 per share was made on December 13, 2024.
HEES shares have been on a long-term growth path over the course of at least five years. During the five years leading to December 13, 2024, shares have returned more than 70%. This improvement has slowed in the past year, with gains of just 5% during that time. The stock achieved an all-time high of more than $65 per share in the spring of 2024 but then shed value for several months and now appears to be heading into the new year with fresh upward momentum.
Like MRC above, H&E reported softer-than-expected earnings for the latest quarter, including revenue and EPS which both missed analyst expectations. With annual sales of $1.47 billion, though, H&E continues to offer an attractive P/S ratio for investors expecting a resurgence in the construction industry in the new year.
DXP Enterprises: Strong Earnings and Share Price Performance
Among the stocks on this list, DXP Enterprises Inc. (NASDAQ: DXPE) has had far and away the strongest performance in 2024. Shares of this maintenance, repair, and operating products and services company have returned 136% in the year leading to December 13, with much of those gains accumulated in brief rallies in March and November.
In both cases, the spike in share price was tied to a strong earnings performance, highlighting the resilience of the company in the face of broader, sector-wide challenges. In the third quarter, for example, DXP notched almost $473 million in sales, an increase of almost 13% year-over-year and an adjusted EBITDA improvement of 19% over the same period. EPS sharply beat analyst expectations as well.
DXP is in the midst of an aggressive growth campaign, having completed several acquisitions in recent months while still managing to generate $24.4 million in free cash flow in the latest quarter. The company's performance has been led by its Innovative Pumping Solutions and Service Centers segments, both of which appear poised to continue to outperform into the new year. For investors, the question may be whether DXP has room for further share price growth as well.
