At this point, people who use the phrase “economic reopening” may want to replace it with “reopening the reopening” to reflect the many problems that nations around the world face as they attempt to put their money back. savings to run at full speed. .
The latest abrupt resurgence of the COVID-19 pandemic due to the spread of the omicron coronavirus variant is just one of the headwinds. That said, if you have a positive outlook and believe the recovery will continue through 2022 – albeit at an uncertain pace – then you might want to consider adding Autoliv (NYSE: ALV), Stanley Black & Decker (NYSE: SWK), and Raytheon Technologies (NYSE: RTX) to your wallet.
The specific investment cases for these stocks vary considerably:
- Autoliv is a reopening game based on the potential for a rebound in global light vehicle production in 2022.
- Stanley Black & Decker will benefit from the moderation of high raw material costs and the resolution of supply chain issues.
- Raytheon Technologies’ commercial aerospace activities will improve as global flight departures increase.
Autoliv: a revival game in the automotive sector
This auto safety company makes 65% of its sales from airbag and steering wheel products, with the remainder coming from seat belt products. It is the dominant player in its niches, with a market share of 42% in passive safety products and 44% in seat belts.
By gaining market share and increasing its per-vehicle content with new technologies as the auto industry embraces new security features, Autoliv increased sales at an annualized rate of 4.4% from 1997 to 2020. This compares to an annualized growth rate of just 1.3% for light vehicle sales over the same period.
In short, Autoliv has demonstrated a consistent ability to grow at a faster rate than its end market. Assuming the semiconductor shortage eases, auto industry watchers expect high single-digit percentage growth in global light vehicle production in 2022, and a multi-year recovery thereafter. . Autoliv is well positioned to take advantage of this rebound, and trading at just 16 times the estimated free cash flow (FCF) for 2022, it looks like an excellent value stock to buy now.
Stanley Black & Decker: an underestimated value
I have written at length elsewhere on the Stanley Black & Decker investment case. But, put it simply, the tools and hardware business will end in 2022 in a much better shape than it started.
Unfortunately, when it released its third quarter results at the end of October, management was forced to lower its guidance for full-year adjusted earnings per share from a range of $ 11.35 to $ 11.65 to a low. new range of $ 10.90 to $ 11.10. The reason for this change is due to a sharp increase in its costs.
To put this in context, management started 2021 expecting just $ 75 million in full-year inflation and headwinds on costs. He increased that estimate to $ 690 million in the third quarter. For reference, Wall Street analysts estimate that Stanley’s sales will amount to $ 17.2 billion in 2021, so the increase in unfavorable cost forecasts represents 3.6% of its sales.
But here’s the thing. Management is implementing price increases and productivity actions which are expected to result in a gradual increase in profit margins until 2022. Meanwhile, the company is incorporating an exciting growth activity. For example, its recently completed acquisition of MTD (Lawn and Garden Equipment) will significantly increase its sales and presence in the outdoor category.
In addition, management expects it to be able to significantly increase MTD’s margin profile. Finally, any improvement in the underlying cost conditions will have a direct impact on the bottom line.
There are plenty of reasons to believe that Stanley Black & Decker’s fortunes will improve through 2022, and with stock prices below 16 times the Wall Street analysts’ consensus estimate for 2022 FCF, that seems excellent value.
Raytheon Technologies: an aerospace game for 2022
Like many other companies exposed to the commercial aerospace industry, Raytheon Technologies has had a frustrating 2021. Despite the increase in its earnings and FCF forecasts throughout the year, and the increase in its synergy forecast following the merger in 2021, investors have been somewhat disappointed.
The stock’s 20% gain in 2021 was lower than that of S&P 500 index gain 27%, but it likely would have outperformed the market if the recovery in commercial aerospace had gone as planned. It’s no secret that the recent resurgence of COVID-19 cases has negatively impacted flight departures. This is bad news for sales of aftermarket commercial aviation equipment – fewer flights mean less demand for spare equipment. Unfortunately, this is bad news for airline profitability as well, and declines on this front typically result in reductions in aircraft orders, which means less sales of Raytheon-made engines and original equipment. .
The latest wave of the pandemic is the reason the aerospace industry has sold off in recent months. However, the sector’s recovery will continue. In addition, Raytheon management continues to target an annual FCF of $ 10 billion by 2025. This is a year when the small and large aircraft markets are expected to, at least, return to 2019 levels.
Although that target is three years away, based on the current market cap of $ 129 billion, Raytheon is trading below 13 times the FCF target of 2025. So if you can look beyond its problems in the short term, this stock could be very attractive to long term holders.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.