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In Part 1, I defined the basic framework of the investment portfolio and in part 2, I bought shares of Google after evaluating the US Megacaps (Apple, Amazon, Google and Microsoft). Considering their potential for future growth, I would like to evaluate a few engineering and automation stocks. This is a wide space and anyone planning to invest in this area needs to start somewhere.
The stocks to evaluate today are : Siemens, Legrand, TE Connectivity and Emerson Electric. From the data on company financials, efficiency, valuation and volatility:
Siemens is least expensive from a revenue multiple perspective (1.6x ttm revenue). probably the reason for its near 50% rise since October 2022.
From a net income to common shareholders, Emerson electric offers more than the other three. In the next step, I will check if this could be a recent trend or if this something that it has delivered in the past.
Dividend yields are nearly the same for all four companies. Emerson and Legrand are the only companies with a positive PEG ratio.
PE ratio: From an earnings perspective, Siemens is most expensive (32.4) and Emerson is the least expensive (17.7).
Volatility of all 4 companies is between 27 and 32%.
Evaluating recent trends in the financials:
Emerson and Legrand have rising trends in revenue, while Siemens and TE connectivity do not.
In a rising interest rate scenario, it is not surprising to see the interest expense going up for companies, which affects the net income. Siemens has the highest interest expense among these 4 while TE connectivity has the least.
Cash flow from operations: flat to declining trends for Siemens, while flat to rising trends for Emerson, TE connectivity and Legrand.
In conclusion of this evaluation, I would put Siemens, TE Connectivity and Legrand on the watch list to come back to it later. Particularly Siemens, at 1.6x its revenue, the stock is attractive and it is likely that the Capex spent over the last few years could prepare it for future revenue growth. At this point, I would shortlist Emerson and compare it to other Engineering and Automation stocks before taking a portfolio decision.
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