Amid the COVID-19 pandemic, the corporate world is anxiously dealing with the change in rules of operating businesses. Companies in auto, construction, industrial products, transportation, and oil/energy markets are likely to show some resilience in the third quarter, after having suffered severely in the first two quarters of 2020.
Companies with exposure to multiple markets are our topics of discussion. These companies come under the ambit of the Zacks Multi-Sector Conglomerates sector. Earnings of conglomerates declined 61.7% year over year in the second quarter of 2020 on a fall in revenues of 26.7%. In the third quarter, the sector’s earnings are predicted to decline 50% and revenues are expected to fall 11.6%.
In the past three months, the sector has gained 9.8% as compared with the S&P 500’s growth of 7.5%.
Factors Favoring Conglomerates
Amid the pandemic, conglomerates with exposure in the medical equipment and personal safety end markets have been benefiting from a surge in demand for personal protective equipment, face masks, sanitizers, medical sensors and others protective gears. For instance, Danaher Corporation DHR believes that the healthy demand for molecular diagnostic and acute care diagnostic products as well as the newly launched Beckman Coulter Diagnostic serology test will play a vital role in the Diagnostics segment. Its third-quarter sales are expected to increase in high-single digits.
Also, healthy business from the defense end market is a tailwind for Honeywell International Inc. HON. Moreover, General Electric Company GE is gaining from the high demand for scanning and other monitoring products — including mobile X-ray systems, ventilators, CTs, patient monitors and ultrasound devices.
Reviving activities in the United States will likely aid companies with exposure to industrial manufacturing. Notably, the ISM’s Purchasers Manufacturing Index scaled to 56% in August, reflecting four consecutive quarters of growth in manufacturing activities in the country.
In addition to the above, the government’s efforts to tackle the pandemic-stricken environment and focus on development as well as a surge in demand from the e-commerce platform are acting as growth boosters.
3 Stocks to Bet On
Using the Zacks Stock Screener, we have zeroed in on three lucrative investment options from the Conglomerates sector that boast solid growth opportunities despite the prevalent near-term uncertainties.
Griffon Corporation GFF: The New-York based company deals in defense electronics, professional and consumer products, and home and building products. Its operations are mainly carried out through its subsidiaries. The company presently sports a Zacks Rank #1 (Strong Buy) and has a VGM Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
Its shares gained 11.9% in the past three months. It reported better-than-expected results in the last reported quarter, with an earnings surprise of 391.67%. Also, the Zacks Consensus Estimates for its earnings grew 47.2% for fiscal 2020 (ending September 2020) and 52.7% for fiscal 2021 (ending September 2021) in the past 60 days.
Danaher Corporation DHR: The company makes and sells industrial, consumer, professional and commercial products. It is based in Washington, DC. The company currently carries a Zacks Rank #2 (Buy).
In the past three months, the company’s shares have gained 18.6%. It delivered better-than-expected results in the last reported quarter, with earnings surpassing estimates by 35.85%. In the past 60 days, the company’s earnings estimates have moved up by 3.4% for 2020 and 3.8% for 2021. Earnings are predicted to grow 11.6% in the next five years.
Raven Industries, Inc. RAVN: The Sioux Falls, SD-based technology company engages in providing various products in aerospace/defense, agricultural, construction, industrial and other markets. The stock currently has a Zacks Rank #2 and a VGM Score of B.
In the past three months, the company’s shares have gained 7.9%. It delivered better-than-expected results in the last reported quarter, beating earnings by 212.50%. In the past 60 days, the company’s earnings estimates have moved up by 8.6% for fiscal 2021 (ending January 2021) and 4.5% for fiscal 2022 (ending January 2022).
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Honeywell International Inc. (HON) : Free Stock Analysis Report
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Griffon Corporation (GFF) : Free Stock Analysis Report
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