stock UPS (NYSE: UPS)an aerospace materials company Hexel (NYSE: HXL)a security door and lock company Ali Legion (NYSE:ALLE) By 2024, it had experienced a significant decline. S&P 500 Over that same period, all three companies increased by 14.6%. But compelling evidence suggests that all three are positioned to outperform the market in the second half of the year and beyond. Here’s why:
The investment case for UPS stock
Parcel delivery giant UPS had a tumultuous year in 2023, with some challenges continuing into the first half of 2024. Slowing economic growth led to lower volume and revenue growth. The situation was further exacerbated by costly labor contract settlements. To make matters worse, protracted labor negotiations led customers to switch deliveries to other networks, fearing strikes.
But those headwinds will turn into tailwinds in the second half of the year, as management expects year-over-year volume growth to begin in the second quarter in the U.S. Meanwhile, higher costs from labor contracts are showing up in the numbers and will make comparisons to last year easier. UPS is cutting 12,000 jobs in response to weak demand.
All are pointing to a strong second half, with management guidance calling for adjusted operating profit to increase 20% to 30% in the second half compared to the same period in 2023.
A key recovery metric investors should watch when UPS reports its second-quarter results on July 23 is a return to growth in delivery volumes in the U.S. Management has previously said it expects average daily U.S. deliveries to be slightly positive in the second quarter. If that happens, UPS will be well on its way to a recovery in 2024.
Hexcel Investors Worried About Boeing
There’s no doubt that Hexcel has strong growth potential over the long term. The company’s advanced composites offer weight and strength advantages over traditional materials such as aluminum. This is a big deal for the aerospace industry, especially for wide-body aircraft, helping to optimize fuel consumption and reduce lifecycle operating and maintenance costs.
So a new trend is clearly emerging plane It uses more advanced composite materials. Boeing and Airbus With a multi-year backlog and plans to ramp up production, all of this points to a bright future for Hexcel.
That said, there is expected to be some short-term turmoil in 2024, which is why the company’s shares have fallen.
Simply put, there is little aftermarket demand for Hexcel’s products, so any slowdown in aircraft deliveries at ultimate end-market customer Boeing could impact Hexcel’s orders. Unfortunately, the Boeing slowdown is creating uncertainty and investors are concerned. Additionally, Hexcel is building out the infrastructure to support robust future growth, putting a strain on near-term profit margins.
Taken together, investors have reason to be concerned. That said, these are short-term issues, and Boeing will likely increase aircraft production rates in the second half of the year and further in the future. As a result, Hexcel investors can expect continued revenue recovery and margin growth over the next few years.
Allegion protects the future
The security door and lock manufacturer also has a bright future. They are leading the movement towards the convergence of electronic and mechanical security products, and the benefits are countless. Wireless-enabled technology allows building owners to remotely monitor and control access areas. The result is reduced shrink, improved security, daily granting and denying access, and improved workflow productivity by knowing which workers are in which area at all times.
The value added is significant, and given that only about 30% of sales come from electronic products and adoption of electronic locks in North America is just 10%, the potential for growth is substantial.
Still, investors are concerned about the company’s exposure to the North American housing market in 2024, and are also concerned by the fact that overall sales in the first quarter fell 3.6% from the same period last year.
However, both issues are likely to be temporary. The North American housing market will improve in a low interest rate environment. Also, the decline in revenue in the first quarter is primarily due to challenging comparisons to 1Q23. On an organic basis, organic sales increased 15% in 1Q23. On a two-year comparison, sales increased 5.3% on a compound annual growth rate basis.
So the pullback in the share price seems like a great buying opportunity in the long-term growth story.
Should you invest $1,000 in United Parcel Service right now?
Before you buy United Parcel Service shares, consider the following:
of Motley Fool Stock Advisor The analyst team Top 10 Stocks Here are the stocks investors should buy right now: United Parcel Service wasn’t among them. The 10 stocks selected could generate huge profits over the next few years.
Things to consider NVIDIA This list was created on April 15, 2005…If you invested $1,000 at the time of recommendation, That comes to $757,001.!*
Stock Advisor With portfolio construction guidance, regular updates from our analysts, and two new stock picks every month, we provide investors with an easy-to-follow blueprint for success. Stock Advisor The service is More than 4 times First S&P 500 recovery since 2002*.
*Stock Advisor returns as of June 24, 2024
Lee Samaha The Motley Fool has no position in any of the stocks mentioned. The Motley Fool recommends Hexcel and United Parcel Service. The Motley Fool recommends Hexcel and United Parcel Service. Disclosure Policy.
These three stocks will fall in 2024 but are expected to bounce back strongly in the second half of the year Originally published on The Motley Fool
