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The Zacks Diversified Operations industry is poised for growth on the back of strength across aerospace, defense and oil & gas industries. Healthy demand across medical and life science end markets and growth in the commercial aviation sector have been proving beneficial for the industry participants. Higher infrastructure development, product innovation efforts and technological advancements in business operations have been other tailwinds.
However, challenges in the manufacturing sector amid persistent supply-chain issues have been denting the performance of some industry players. Carlisle Companies Inc., Griffon Corp. and Vector Group Ltd. are a few stocks with healthy prospects.
About the Industry
The Zacks Diversified Operations industry includes companies that operate in various end markets, including oil & gas, industrial, electronics, power, aviation, technology, finance, healthcare, chemical, non-residential construction and transportation. Such companies manufacture and provide equipment and solutions, including bioprocessing products, molecular testing-related products, gas and steam turbines, generators, commercial jet engines and engineered fluid-process equipment.
Industry players also provide related services to a large customer base. A few companies offer services in the agriculture, marine and telecommunications markets and are engaged in providing environmental and safety solutions. The diversified market operators have a vast global presence, with exposure in the United States, Japan, India, China, Canada and other countries.
Major Trends Shaping the Future of the Diversified Operations Industry
Strength in Aerospace and Defense Markets: The prospects of multi-sector companies are closely linked to the operating conditions of end markets. Some factors that currently favor the industry are healthy demand from the defense and governmental sectors, higher exploration activities in the oil and gas industry and infrastructure development.
Industry players with exposure in the commercial aviation markets are poised to gain from healthy growth in air transport flight hours. Also, higher demand for several products and equipment in the medical and life science markets bode well for some industry participants.
Investments in Innovation & Technological Advancements: The industry participants’ constant focus on innovation, product upgrades and the development of new products to stay competitive in the market should drive growth. With the gradual development of business models and cutting-edge technologies, several industry players have been banking on digitizing their business operations for a while now. Digitization enabled industry participants to boost their competitiveness through enhanced operational productivity, product quality and better cost management.
Weakness in the Manufacturing Sector: Persistent weakness in the manufacturing sector has been weighing on demand in the industry. Per the Institute for Supply Management report, in February 2024, the Manufacturing PMI (Purchasing Manager’s Index) touched 47.8%, contracting for the 16th consecutive month. A figure less than 50% indicates a contraction in manufacturing activity. Also, the New Orders Index returned to the contraction territory at 49.2% in February, declining 3.3 percentage points from the figure recorded in January.
Supply-Chain Disruptions: Supply-chain disruptions, especially related to the availability of electronic components, remain a concern for the industry participants of late. This is evident from the latest ISM report’s Supplier Deliveries Index, which reflected slower deliveries in February. Supply-chain issues, if not controlled, might continue hindering growth of diversified operation companies going forward.
Zacks Industry Rank Suggests Bright Prospects
The Zacks Diversified Operations industry, housed within the broader Zacks Conglomerates sector, currently carries a Zacks Industry Rank #27. This rank places it in the top 11% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates robust prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
Given the bullish near-term prospects of the industry, we will present a few stocks that you may want to consider for your portfolio. However, it is worth taking a look at the industry’s shareholder returns and current valuation first.
Industry Lags the S&P 500
Over the past year, the Zacks Diversified Operations industry has underperformed the Zacks S&P 500 composite. The industry has increased 6.2% compared to the S&P 500 Index’s 26.4% growth.
Industry's Current Valuation
On the basis of enterprise value/earnings before interest, taxes, depreciation and amortization (EV/EBITDA - TTM), which is the commonly used multiple for valuing diversified operations stocks, the industry is currently trading at 14.77X compared with the S&P 500’s 14.28X.
In the past five years, the industry has traded as high as 24.66X, as low as 7.41X and at the median of 11.90X.
3 Diversified Operations Stocks to Buy
Carlisle: Based in Scottsdale, AZ, the company engages in manufacturing and providing roofing and waterproofing products, finishing equipment and engineered products. The company is set to gain from strength in the U.S. reroofing end markets along with acquired assets in the quarters ahead. Also, solid repair and remodel demand across the building envelope in commercial and residential markets bode well. Contribution from Carlisle Operating System and price realization are supporting its margins.
Shares of the Zacks Rank #1 (Strong Buy) company have gained 14.2% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here. The company delivered better-than-expected results thrice and missed estimates once in the trailing four quarters, the earnings surprise being 7.6%, on average. Its earnings estimates have improved 8.2% for 2024 in the past 60 days.
Griffon: The New York-based company is a management and holding company operating through its subsidiaries. Product innovation, specialized household and building products, solid manufacturing capabilities and a surge in the e-commerce business are expected to drive GFF’s performance in the quarters ahead.
Shares of this Zacks Rank #1 company have increased 9.1% in the past year. It delivered an earnings surprise of 42.0%, on average, beating estimates in each of the last four quarters. In the past 60 days, the company’s earnings estimates have increased 3.9% for fiscal 2024 (ending September 2024).
Vector Group: Based in Miami, FL, the company is engaged in manufacturing and selling cigarettes in the United States. In the quarters ahead, the company is poised to benefit from solid demand for its products and gains in the wholesale and retail market share. Its focus on effectively managing volume, pricing, and market share in its value-based brand portfolio has been proving beneficial.
Although shares of this Zacks Rank #1 company have lost 17.8% in the past year, it has rebounded 5.7% in the past month. The company’s earnings estimates have improved 6.9% for 2024 in the past 60 days.
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Join us on Facebook: https://www.facebook.com/ZacksInvestmentResearch/ Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Industry Outlook Highlights Carlisle Companies, Griffon and Vector Group
For Immediate Release
Chicago, IL – March 5, 2024 – Today, Zacks Equity Research discusses Carlisle Companies Inc. (CSL - Free Report) , Griffon Corp. (GFF - Free Report) and Vector Group Ltd. (VGR - Free Report) .
Industry: Diversified Operations
Link: https://www.zacks.com/commentary/2235100/3-stocks-to-buy-from-the-prosperous-diversified-operations-industry
The Zacks Diversified Operations industry is poised for growth on the back of strength across aerospace, defense and oil & gas industries. Healthy demand across medical and life science end markets and growth in the commercial aviation sector have been proving beneficial for the industry participants. Higher infrastructure development, product innovation efforts and technological advancements in business operations have been other tailwinds.
However, challenges in the manufacturing sector amid persistent supply-chain issues have been denting the performance of some industry players. Carlisle Companies Inc., Griffon Corp. and Vector Group Ltd. are a few stocks with healthy prospects.
About the Industry
The Zacks Diversified Operations industry includes companies that operate in various end markets, including oil & gas, industrial, electronics, power, aviation, technology, finance, healthcare, chemical, non-residential construction and transportation. Such companies manufacture and provide equipment and solutions, including bioprocessing products, molecular testing-related products, gas and steam turbines, generators, commercial jet engines and engineered fluid-process equipment.
Industry players also provide related services to a large customer base. A few companies offer services in the agriculture, marine and telecommunications markets and are engaged in providing environmental and safety solutions. The diversified market operators have a vast global presence, with exposure in the United States, Japan, India, China, Canada and other countries.
Major Trends Shaping the Future of the Diversified Operations Industry
Strength in Aerospace and Defense Markets: The prospects of multi-sector companies are closely linked to the operating conditions of end markets. Some factors that currently favor the industry are healthy demand from the defense and governmental sectors, higher exploration activities in the oil and gas industry and infrastructure development.
Industry players with exposure in the commercial aviation markets are poised to gain from healthy growth in air transport flight hours. Also, higher demand for several products and equipment in the medical and life science markets bode well for some industry participants.
Investments in Innovation & Technological Advancements: The industry participants’ constant focus on innovation, product upgrades and the development of new products to stay competitive in the market should drive growth. With the gradual development of business models and cutting-edge technologies, several industry players have been banking on digitizing their business operations for a while now. Digitization enabled industry participants to boost their competitiveness through enhanced operational productivity, product quality and better cost management.
Weakness in the Manufacturing Sector: Persistent weakness in the manufacturing sector has been weighing on demand in the industry. Per the Institute for Supply Management report, in February 2024, the Manufacturing PMI (Purchasing Manager’s Index) touched 47.8%, contracting for the 16th consecutive month. A figure less than 50% indicates a contraction in manufacturing activity. Also, the New Orders Index returned to the contraction territory at 49.2% in February, declining 3.3 percentage points from the figure recorded in January.
Supply-Chain Disruptions: Supply-chain disruptions, especially related to the availability of electronic components, remain a concern for the industry participants of late. This is evident from the latest ISM report’s Supplier Deliveries Index, which reflected slower deliveries in February. Supply-chain issues, if not controlled, might continue hindering growth of diversified operation companies going forward.
Zacks Industry Rank Suggests Bright Prospects
The Zacks Diversified Operations industry, housed within the broader Zacks Conglomerates sector, currently carries a Zacks Industry Rank #27. This rank places it in the top 11% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates robust prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
Given the bullish near-term prospects of the industry, we will present a few stocks that you may want to consider for your portfolio. However, it is worth taking a look at the industry’s shareholder returns and current valuation first.
Industry Lags the S&P 500
Over the past year, the Zacks Diversified Operations industry has underperformed the Zacks S&P 500 composite. The industry has increased 6.2% compared to the S&P 500 Index’s 26.4% growth.
Industry's Current Valuation
On the basis of enterprise value/earnings before interest, taxes, depreciation and amortization (EV/EBITDA - TTM), which is the commonly used multiple for valuing diversified operations stocks, the industry is currently trading at 14.77X compared with the S&P 500’s 14.28X.
In the past five years, the industry has traded as high as 24.66X, as low as 7.41X and at the median of 11.90X.
3 Diversified Operations Stocks to Buy
Carlisle: Based in Scottsdale, AZ, the company engages in manufacturing and providing roofing and waterproofing products, finishing equipment and engineered products. The company is set to gain from strength in the U.S. reroofing end markets along with acquired assets in the quarters ahead. Also, solid repair and remodel demand across the building envelope in commercial and residential markets bode well. Contribution from Carlisle Operating System and price realization are supporting its margins.
Shares of the Zacks Rank #1 (Strong Buy) company have gained 14.2% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here. The company delivered better-than-expected results thrice and missed estimates once in the trailing four quarters, the earnings surprise being 7.6%, on average. Its earnings estimates have improved 8.2% for 2024 in the past 60 days.
Griffon: The New York-based company is a management and holding company operating through its subsidiaries. Product innovation, specialized household and building products, solid manufacturing capabilities and a surge in the e-commerce business are expected to drive GFF’s performance in the quarters ahead.
Shares of this Zacks Rank #1 company have increased 9.1% in the past year. It delivered an earnings surprise of 42.0%, on average, beating estimates in each of the last four quarters. In the past 60 days, the company’s earnings estimates have increased 3.9% for fiscal 2024 (ending September 2024).
Vector Group: Based in Miami, FL, the company is engaged in manufacturing and selling cigarettes in the United States. In the quarters ahead, the company is poised to benefit from solid demand for its products and gains in the wholesale and retail market share. Its focus on effectively managing volume, pricing, and market share in its value-based brand portfolio has been proving beneficial.
Although shares of this Zacks Rank #1 company have lost 17.8% in the past year, it has rebounded 5.7% in the past month. The company’s earnings estimates have improved 6.9% for 2024 in the past 60 days.
Why Haven’t You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +7.0 average gain per year. Amazingly, they soared with average gains of +44.9%, +48.4% and +55.2% per year.
Today you can access their live picks without cost or obligation.
See Stocks Free >>
Join us on Facebook: https://www.facebook.com/ZacksInvestmentResearch/ Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
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Zacks Investment Research
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.