2 underrated industrial plays according to this analyst

Fri, Oct 18, 2024, 4:30 PM

Sakraida points to Vertiv (VRT) as an opportunity, noting that it's a great data center infrastructure play as the AI race heats up. "They are a leading manufacturer and service provider for thermal cooling and power management systems for data centers. Data centers represent just around 75% of their sales. But at the end of this year, we're expecting that to be more like 80-85%, just given how robust this growth is," he explains.

He also points to Xylem (XYL), which is a play tied to the 2021 federal stimulus. "It's been very slow to work its way down to the project activity level, but we're starting to see some pickup," he tells Yahoo Finance. Sakraida notes that about $550 billion of stimulus will be dispersed over the next few years.

Xylem is a water infrastructure play, and he calls it a "leader in this space" with more upside to go.

00:00 Speaker A

So everybody knows Deer, everybody knows Caterpillar. Let's talk about a couple of ones people don't know. Let's talk Vertiv. Now I mean I think more people know it now than they did. The stock has had a crazy run. It's one of these AI related plays. What is Vertiv do and why do you think it's going to continue to be able to to rise?

00:23 Speaker B

So Vertiv is a data center infrastructure play. So they are a leading manufacturer and service provider for thermal cooling and power management systems for data centers. Data centers represent just around 75% of their sales. By the end of this year we're expecting that to be more like 80 85 just given how robust this growth is. And if you look downstream from all of this uh a really called a spending spree from these tech large tech firms. If you look at meta, alphabet, Microsoft, Amazon together they spent over 50 billion dollars in capital spending just last quarter. Right? And where is this flowing downstream? You have companies like Vertiv that are extremely important in building out this this infrastructure, these hyperscale data centers that are going to enable these AI applications to really uh you know, join the forefront here. Um explosive growth. So first quarter 60% growth in organic orders, second quarter 57%. Yeah, it's kind of it's a rocket ship. It's done incredible and you you would might want to hesitate thing like, "Oh, it's doubled" right since the beginning of the year. What's the catch? But really the earnings growth is that substantial. It's not just a top line expansion story. Look at margins. This is a sub 10% operating margin business. It's now going towards 20%. You know, this translate into substantial earnings growth. This year we're forecasting 45% earning EPS expansion. Next year over 30% and these these projections are not even that bullish. So this is really one of the most attractive growth stories we've seen in industrial sector for some time.

02:14 Speaker A

Just like Nvidia. Look at its stock chart. Yeah.

03:05 Speaker A

Quickly what about XYL?

03:10 Speaker B

Yeah, Xylem. Now Xylem is another infrastructure play, but really tied to federal stimulus passed back in all the way back in 2021. It's been very slow to work its way down to the the project activity level, but we're starting to see some pickup. The Biden administration has worked very hard to expedite this IIJA funding towards the project level, about 550 billion dollars of stimulus being dispersed out over the next few years. And Xylem is a water infrastructure play, water technology whether it's filtration, treatment, just the the flow of water. This is really their bread and butter. They're a leader in this space and we think there's a lot of upside here to go. It's really been an underlooked stock in our opinion.

04:02 Jonathan

Jonathan, that was great. Thank you for those picks. That was super interesting.

04:06 Speaker B

Of course, thank you for having me.

04:08 Jonathan

Appreciate it.