3 Instruments Stocks Likely to Benefit From Positive Industry Vibes

Industry Overview - The Zacks Instruments – Control industry focuses on energy-efficient production processes and integrated software systems, with rising demand for advanced technology to replace legacy industrial controls expected to drive growth [1][4] - The industry includes manufacturers of precision and specialty motion-control components and systems, providing solutions for flow measurement, control, and communication across various sectors [3] Growth Drivers - Increased adoption of automation and higher investments in new technologies are anticipated to propel growth, particularly in North America, supported by rising infrastructural investments in energy and power sectors [4] - The pharmaceutical industry's process automation market is expanding due to cost factors and evolving regulations, indicating a shift towards high-quality equipment and partnerships with process control players [4][6] Challenges - Elevated customer inventory levels, high capital expenditures for infrastructure upgrades, and market volatility may negatively impact the process automation and instrumentation market [2] - Material cost inflation and rising transportation costs, exacerbated by geopolitical tensions, are affecting margins and production schedules, with companies struggling to pass on costs to customers due to competitive pressures [5] Technological Trends - The industry's growth is significantly driven by the emphasis on digitized technologies, including the Industrial Internet of Things, which enhances manufacturing processes and compliance with regulations [6] - Process instrumentation equipment is crucial for measuring key elements in industries such as chemicals, mining, and pharmaceuticals, contributing to improved product quality and emission reductions [6] Market Performance - The Zacks Instruments – Control industry has underperformed compared to the S&P 500 and the broader Zacks Computer and Technology sector, with a decline of 12.3% over the past year [9] - The industry currently holds a Zacks Industry Rank of 89, placing it in the top 36% of over 250 Zacks industries, indicating positive near-term prospects [7][8] Valuation Metrics - The industry has a trailing 12-month Enterprise Value-to-EBITDA (EV/EBITDA) ratio of 11.19X, lower than the S&P 500's 15.54X and the sector's 14.30X, suggesting potential undervaluation [11] Notable Companies - Watts Water Technologies, Inc. (WTS): Focuses on water safety and flow control products, benefiting from cost-reduction actions and a strong balance sheet, with a long-term earnings growth expectation of 7.1% [14] - Badger Meter, Inc. (BMI): Provides flow measurement and control solutions, known for accuracy and durability, with a long-term earnings growth expectation of 12.1% and a 20.2% gain over the past year [17][18] - Thermon Group Holdings, Inc. (THR): Offers engineered industrial process heating solutions, expanding its market reach through acquisitions, with a consistent earnings surprise of 11.3% on average [21]