2 Under-the-Radar Industrials Stocks
December 17, 2020
In 2020, gains in the US stock markets have been driven by the technology sector. Yet there are actually a wide swath of great companies out there that aren’t considered traditionally as “tech”.
These include companies in the industrials sector, many of which are leveraging technology to make their businesses much more efficient and streamlined.
For long-term investors, this translates into plenty of opportunities. That’s because, in the US there are plenty of world-class industrials-focused firms that operate in areas that none of us generally think of as lucrative.
So, with that here are two US-listed, under-the-radar industrials stocks that I think investors can consider buying and holding for the long term.
1. Roper Technologies
Interestingly enough, back in 2015 Roper Technologies Inc (NYSE: ROP) actually changed its name from Roper Industries to what it is today.
That’s because this diversified industrials conglomerate, which serves a host of niche industrials markets through its many businesses, has turned started to provide technological solutions to its customers.
These include, but aren’t limited to, application software, network software & systems, and measurement and analytical solutions.
Effectively, Roper owns a host of companies that operate in various spaces. It can be viewed as a Berkshire Hathaway Inc (NYSE: BRK.B) of sorts but for the industrials space.
Why’s that the case? It’s because Roper Technologies has managed to accumulate – via acquisitions – a series of high-margin quality businesses that boast recurring revenues (such as industrial Software-as-Service firms).
What’s more, Roper has a solid track record of successful M&A. By having a collection of firms under its umbrella, the growth and strength in free cash flow has been impressive (see below).
Source: Roper Technologies Q3 2020 investor presentation
For those of us who love dividends, there’s an extra bonus. Unsurprisingly, all that free cash flow generation has allowed Roper Technologies to pay a rising dividend. It has done this for 27 consecutive years, making it a Dividend Aristocrat.
Long-term investors will like what they see with Roper Technologies and the fact that its revenue (and net income) have held up in a pandemic year speaks to how crucial its services are.
2. EPAM Systems
For investors interested in design and the industrials space, EPAM Systems Inc (NYSE: EPAM) is one of the leading players.
The company provides best-in-class solutions for clients through digital platform engineering, and digital and product design through customised software.
Comprised of consultants, designers, architects and engineers, the multi-disciplinary team at EPAM works to help clients come up with innovative technology solutions to design issues.
Investors can think of it as a younger Autodesk Inc (NASDAQ: ADSK), with EPAM having been founded in only 1993.
It has quickly grown its presence to more than 30 countries and in FY 2019 it recorded US$2.3 billion in revenue.
However, more impressively, its revenue over the past 10 years has grown at a compound annual growth rate (CAGR) of 31%.
Source: EPAM Systems Q3 2020 investor presentation
EPAM continues to innovate and has managed to almost double its revenue between 2016 and 2019. As you can see above, the company is also diversified from both a geographic and sub-division angle.
With continued demand for these types of services, as engineering and design become increasingly technology-focused, EPAM is set to continue to be a long-term winner.
Disclaimer: ProsperUs Head of Content Tim Phillips doesn’t own shares in any companies mentioned.
Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth.
He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer.
In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.