Three Metal Fabrication Stocks to Watch Out For
The demand for metal fabrication faced a major challenge when it was badly hit during the COVID-19 pandemic, and even now the industry has been witnessing deceleration in demand of late due to muted customer spending. There are other headwinds as well, such as a labor crisis, coupled with the ongoing supply-chain issues and persistent shortages of critical materials. While these factors are affecting the fabrication industry’s production output, certain industry players are expected to gain from their cost-management efforts, focus on improving efficiency and investment in automation. This blog will cover three fabrication stocks in this regard and will try to identify what makes these companies stand out from other metal fabrication stocks.
The Timken Company
The company continues to witness new business wins in new markets and regions. Its diversity in terms of end market, customer and geography, product innovation and engineering expertise provides it with a competitive edge. Underlying customer demand and end-market momentum remain strong across most of its sectors. Apart from strong demand, earnings growth will be supported by benefits from price realization, growth initiatives and operational excellence initiatives. Timken continues to pursue strategic acquisitions to broaden its portfolio and capabilities across diverse markets, focusing on bearings and pressure vessels, adjacent power transmission products, and related services. It recently inked a deal to acquire GGB Bearing, which boasts a portfolio of metal-polymer bearings, serving a wide range of industries. This acquisition provides strong synergies and expands Timken’s business by adding products with solid growth outlook.
Norsk Hydro ASA
Higher all-in metal and alumina prices, and record high results in Extrusions contributed to Norsk’s solid results during 2022. Norsk has been adjusting capacity to meet market demand, and continues focusing on reducing costs and improving operational excellence, which will help drive margins. It continued to progress on its Hydro 2025 strategy in the fourth quarter of 2022, both strengthening its position in low-carbon aluminum and growing in the new energy areas. Greener aluminum with a lower carbon footprint is necessary with aluminium tariffs being levied on carbon emissions. In the first quarter of 2023, Norsk’s sales were 45% higher year over year, supporting its target to double the sales of greener products by 2025. Extrusions remain a key growth area in NHYDY’s 2025 strategy and in the third quarter of 2022, it decided to invest in 12,000 tons of additional capacity at its extrusions plant in Rackwitz, Germany.
Northwest Pipe Company
Northwest’s Engineered Steel Pressure Pipe business has been witnessing solid bidding and a strong backlog for a while which bodes well for the segment. The Precast business continues to perform well and its pipe spool fabrication order levels are expected to grow in the near term, leading to further margin expansion, backed by a robust precast market. Rising demand for developed water sources and the pressing need to upgrade, repair and replace the aging U.S water and wastewater systems present a huge opportunity for Northwest. Backed by a strong balance sheet and solid liquidity, Northwest continues executing its growth strategy. In October 2021, it acquired ParkUSA, a precast concrete and steel fabrication-based company that develops and manufactures water, wastewater, and environmental solutions. This marked Northwest’s third major transaction in just more than three years. The ParkUSA integration remains on schedule and is steadily contributing to the Precast segment’s performance.
An interesting observation from the analyses of the three stocks is that there is no single contributor to their rising potential. While Timken has benefited from strategic acquisitions, Norsk has focused on green energy areas and Northwest has a robust steel pipe business which is driving growth. Thus, in the challenging metal fabrication world, it is important to focus on one’s strengths while managing macro and micro economic headwinds – important lessons for other fabrication companies!