New Growth in Industrial Sector

 | Aug 14, 2013 | 10:30 AM EDT
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I spent some time at the Jefferies Industrials Conference this week, checking in on the new growth sector in the U.S. economy.

Many segments of tech have flattened out or are on the decline, and the earnings performance is certainly lackluster. In comparison, many industrial segments are robust. The conference was a great opportunity for presenting companies to highlight the opportunities, as well as to resolve points of controversy. The Jefferies analysts, whom I consider top-notch, discussed their high priority names and key issues for which clarification could be catalysts for the stocks.

Here are a few that stood out to me:

Boeing (BA) --The aerospace cycle is in full swing, and Boeing still leads the industry despite the recent 777 snafus. The company's $5 billion of free cash flow this year could grow to $24 billion over the 2014 to 2016  timeframe. The cycle is being driven by several visible factors: retirement of old planes, economics of new efficient models, and traffic growth. The company needs to offer a sense of the visibility and sustainability of orders.

DuPont (DD) -- DuPont is visibly redirecting its focus to industrial biosciences from more commodity chemicals. Industrial bioscience (in other words, enzymes and associated products) is only 3% of revenue, but will grow more rapidly, especially with the capital from the divestiture of performance chemicals. Many investors own DD for the dividend (present company included), so spinning off a cash cow to focus on a capital-intensive, more developmental business may require a high level of persuasion.

WR Grace (GRA) -- Grace is a broad line chemical company, but the key segment of FCC catalysts (used in oil refining) slipped for them after a 10% price increase failed. Refiners were unwilling to swallow the increase when their own crack spreads were under pressure. The situation is unlikely to be resolved soon, since refiners will remain under pressure due to falling gasoline demand. Grace will need to find new catalyst end markets to resume growth. 

Luxfer Holdings (LXFR) -- This relatively unknown company (European, recent IPO) could emerge as another shale derivative play, due to its business in CNG cylinders. Natgas-powered vehicles are a growing trend, and any company that helps enable the trend should be able to capture new revenue opportunities. Luxfer has additional chemicals opportunities, such as diesel catalysts, heart stents, and home medical oxygen cylinders.

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