QVI Stock Picks Review | Winter 2024 | #6
Quality Value Investing's industrials sector group one updates for MMM, UNP, FDX, UPS, MLI, and NOC.
Summary:
Quality Value Investing reviews the current wealth and present value of six QVI industrials sector picks, including 3M, Union Pacific, FedEx, United Parcel Service, Mueller Industries, and Northrop Grumman.
The post includes updates to QVI’s checklist research and analysis of each company’s current wealth and the stock price’s present value.
Any changes in my views (buy, hold, or sell) are reflected in the QVI Concentrated and Expanded Stock Picks Real-Time Performance Trackers.
When referencing this report, premium (paying) subscribers can access their Quality Value Investing (QVI) Glossary of Investing Terms and Metric Targets. Unless noted, all data presented is sourced from Seeking Alpha Premium as of the market close on February 23, 2024, and intended for illustration only.
In this series, Quality Value Investing reviews the QVI Real-Time Stock Picks by sector to update each holding’s performance, current wealth, and present value.
Today’s post covers six of QVI’s 12 industrials sector picks (Group 1): 3M Company (NYSE: MMM), Union Pacific Corporation (NYSE: UNP), FedEx Corporation (NYSE: FDX), United Parcel Service, Inc. (NYSE: UPS), Mueller Industries, Inc. (NYSE: MLI), and Northrop Grumman Corporation (NYSE: NOC).
Company Current Wealth
To uncover the current wealth of each company, QVI defines the value proposition, measures returns on management, and assesses enterprise downside risks.
Value Proposition
QVI’s value proposition section defines the competitive advantages of each company’s products or services to its customers compared to the industry.
Economic Moat
Morningstar assigns wide economic moat ratings to Union Pacific, United Parcel Service, and Northrop Grumman. A narrow moat surrounds 3M Co. (downgraded from wide) and FedEx.
There is no Morningstar rating for Mueller Industries. Still, it likely would earn a wide or narrow moat from its compelling equity and invested capital returns, as illustrated later in the Returns on Management section.
Value Proposition Elevator Pitches
3M Co. is the industrials sector's patent leader and yields double-digits on a cost basis in the QVI Concentrated Portfolio, despite or because of its much-publicized product legal woes.
Union Pacific owns the highest quality business model in the North American freight rail oligopoly.
FedEx remains a formidable operator in the air freight and logistics industry despite its challenges in recent years that facilitated the stepping down of founder and long-time hands-on CEO Fred Smith to become executive chairman.
United Parcel Service or Big Brown is everywhere transporting and delivering packages, whether in the neighborhood, workplace, at the airport, or on the highway.
Mueller Industries is a boring yet fundamentally sound industrial staple, commodity prices and construction business cycles notwithstanding.
Northrop Grumman is an entrenched member of the U.S. military-industrial complex, reaping the long-term benefits of predictable incremental growth and steady profit margins.
Returns on Management
QVI’s fundamentals section measures the performance strength of each company’s senior management by analyzing revenue growth, net profit margin, and returns on equity and invested capital.
Revenue Growth and Net Profit Margins
Mueller Industries, FedEx, and Union Pacific enjoyed solid revenue growth during the three-year trailing period. United Parcel Service, Northrop Grumman, and 3M Co. had modest topline increases in the coverage timeframe.
The industrials sector had a +6.32% median revenue growth for comparison.
All except FedEx had double-digit median profit margins in the three-year trailing period. Union Pacific, 3M Co., and Mueller Industries led the way, followed by Northrop Grumman and United Parcel Service.
The sector had a +6.02% median net profit margin.
Next, we’ll look at each company’s returns on management and enterprise downsize risks and each stock’s present value, including shareholder yields, valuation multiples, and share price downside risks, exclusive to Quality Value Investing’s premium (paying) subscribers. The post concludes with the updated views on each covered stock.
Disclosure: I/we have beneficial long positions in the common shares of MMM and UNP in our family portfolio. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it other than from Substack paid subscriptions. I have no business relationship with any company whose stock is mentioned in this article.
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