Today I’m looking at low-tech companies that are ideal for value investors. These low-tech companies include manufacturing, milling and equipment-making firms that now have inexpensive valuation metrics. Right now their stock prices all reflect the possibility of a recession. That makes the valuations of these tech stocks inexpensive.
Moreover, they all pay dividends to their shareholders. This allows the shareholders to be patient until the underlying value of the company’s fundamentals emerges in the stock price. It helps investors to be patient until the company’s stock price rises to close to its target underlying value.
This list includes two steel companies, two equipment makers, a farm machinery manufacturer and a diesel/natural gas engine maker. They are facing potentially declining orders in some cases, and not in others. But all have low multiples of earnings and cash flow.
Let’s dive in and look at these low-tech stocks.
| CAT | Caterpillar | $206 |
| X | U.S. Steel | $20.58 |
| CMI | Cummins | $199.16 |
| NUE | Nucor | $116.46 |
| CNHI | CNH Industrial | $13.15 |
| AGCO | AGCO Corporation | $113.86 |
Caterpillar (CAT)
Market Cap: $114.8 billion
Caterpillar (NYSE:CAT) is a heavy machinery and equipment manufacturer that trades for just 14.1 times 2023 forward earnings. Moreover, earnings are forecast to rise 17.7% from 2022 to 2023, at least right now. Analysts expect 2023 earnings per share (EPS) to rise to $14.64 in 2023 on average, from $12.44 in 2022.
Those numbers could be lower after the Q2 earnings release comes out.
Moreover, CAT stock has a 2.3% dividend yield based on its annual $4.80 dividend per share. This shows that its earnings more than cover the dividend. Its payout ratio based on 2022 EPS is 39%, which shows that EPS could fall a good deal before the dividend would ever be in trouble.
Moreover, the company’s cash flow is strong and it is buying back its shares. As a result, this is probably a good entry point for value investors.
United States Steel Corp (X)
Market Cap: $5.8 billion
U. S. Steel Corporation (NYSE:X) is a major hot, cold and galvanized steel maker. Some of the best stocks to buy in a recession are low-tech stocks in cyclical industries like this. Expect to buy into X stock at the bottom or worst point in a recession, when analysts forecast even lower earnings, pushing its P/E even higher.
At the highest P/E point, value investors know that the market is already discounting the future.
For example, its earnings are actually on a downward trajectory from $10.59 forecast this year to $3.64 in 2023. But, interestingly, the stock already discounts this so much that the forecast 2023 P/E multiple rises to just 5.7x, according to Seeking Alpha.
The point is, a huge amount of bad news is already discounted into the stock price. So even if earnings turn out worse than expected for Q2, it may actually be a good point to start averaging into this low-tech stock.
Cummins (CMI)
Market Cap: $29 billion
Cummins Inc (NYSE:CMI) is a major diesel and natural gas engine manufacturer. The stock price is cheap now, trading at just over 1x sales, and less than 10x 2023 forecast earnings.
In fact, earnings are forecast to rise over 14% from $17.66 in 2022 to $20.20. This is based on the average earnings forecast of 21 analysts surveyed by Seeking Alpha.
Moreover, the average analyst estimate for 2022 EPS of $17.66 per share more than covers the $5.80 dividend per share. That gives it a dividend payout ratio of 32.8%, or about one-third. So the company’s earnings could drop by over 50% and Cummins could still keep paying its dividend. That gives a lot of strength and security to the stock price.
At today’s price below $200 ($199.16 as of the close June 15), CMI stock now has a dividend yield of 2.9%, trades at 9.9x 2023 forecast earnings and still shows positive earnings growth.
Nucor (NUE)
Market Cap: $32 billion
Nucor (NYSE:NUE) produces hot-rolled, cold-rolled and galvanized sheet steel products, and just like U. S. Steel, it’s a highly cyclical stock.
Moreover, its earnings are forecast to drop over 50% by the end of 2023 but the stock still has a multiple of 10x for 2023.
Moreover, its 2023 earnings per share (EPS) of $11.66 that is forecast for 2023, although down 57% from 2022, will still cover Nucor’s dividend of $2 per share.
That should give investors in this low-tech stock a good deal of comfort that the dividend will still be paid over the next year.
CNH Industrial (CNHI)
Market Cap: $18.5 billion
CNH Industrial (NYSE:CNHI) makes agricultural and construction equipment, trucks, commercial vehicles and more. It is now very cheap with surprisingly good earnings growth forecasts. For example, analysts forecast that EPS will rise 12% from $1.34 forecast for 2022 to $1.50 in 2023.
That more than covers the company’s 30-cent annual dividend. This gives the stock a dividend yield of 2.3% as of its June 15 closing price of $13.15 per share.
The dividend payout ratio is very low as well, at just 22.3%. That makes investors very secure about its dividend going forward. For example, earnings could easily drop over 50% and the payout ratio would still be lower than 50%.
At $13.15, the stock trades for just 9.8x 2022 forecast earnings and 8.8x 2023 forecasts. This is very inexpensive, especially given its yield and earnings forecasts.
AGCO Corp (AGCO)
Market Cap: $8.8 billion
AGCO Corporation (NYSE:AGCO) manufactures and distributes agricultural equipment. It is forecast to show 10% earnings growth next year and trades for less than 9x earnings for 2023, according to Seeking Alpha.
When the stock closed on June 15 at $113.86, it had a dividend yield of 0.84% with its 96-cent dividend per share. But investors know that earnings of $11.87 for 2022 more than cover that dividend.
This makes AGCO stock one of the best low-tech stocks out there.
On the date of publication, Mark Hake did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
