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In this article, we will discuss the 11 best hardware stocks to buy now. If you want to skip our analysis of the hardware industry and explore similar stocks, you can also take a look at 5 Best Hardware Stocks To Buy Now.
The hardware and tools industry is an important part of the global economy. It includes the production of tools, machinery, and other related products used in the manufacturing, construction, and maintenance sectors. The industry is diverse and encompasses a variety of products, from hand tools to power tools, garden tools, and other products. The hardware and tools industry is reliant on the manufacturing and construction industries, as the tools and machinery produced are used in these industries. Demand for these products is determined by the size of the projects being undertaken, and the amount of work that needs to be done. As such, the industry is highly cyclical and can be heavily affected by economic changes. The industry has seen significant growth in recent years, due to the increasing demand for construction and manufacturing. This has been driven by population growth, urbanization, and the need for more efficient and cost-effective products. In addition, the growth of the digital economy has led to more demand for digital tools and machines, such as 3D printers and CNC machines. The industry is highly competitive, with companies competing to produce the highest quality tools and products at the lowest costs. In order to remain competitive, companies must constantly innovate and develop new products to keep up with changing consumer preferences.
The Hardware Industry: An Analysis
According to an industry analysis report by The Business Research Company, the global hardware market was valued at $100.21 billion in 2021 and is expected to reach a value of $109.05 billion by the end of 2022, registering a compound annual growth rate of 8.8%. The global hardware market is projected to grow at a compound annual growth rate of 5.7% from 2022 through 2026, and reach a valuation of $136.34 billion by the end of the forecasted period.
The report highlighted that favorable demand trends for metal, and aluminum in particular, coming from the growth of the aerospace industry, are one of the major driving forces fueling the growth of the global hardware industry. Air travel is expected to increase over the forecasted period, therefore driving the demand for metal and consequently the growth of the global hardware industry. However, a potential headwind for the global hardware market is the current geopolitical state of affairs, which has resulted in supply disruptions and a surge in commodity prices. The Ukraine war has caused demand destruction across the globe and is a major hurdle in the growth of the global hardware market as of yet.
A key trend that is disrupting the global hardware industry is the rising adoption of industrial automation and the use of robotics in manufacturing to make the process more efficient. Robots can now be used to automate many of the more tedious and time-consuming tasks, such as drilling and grinding, allowing companies to produce more products at a faster rate.
Hardware and tools stocks include companies that manufacture, distribute, and sell hardware and tools used in residential and commercial construction, manufacturing, and repair and maintenance. These stocks can offer investors the potential for growth and income, as well as exposure to a wide range of industries. Hardware and tools stocks can provide investors with exposure to the construction and home improvement industries, which tend to be cyclical in nature and highly dependent on the overall economy. In times of economic expansion, demand for hardware and tools typically increases, leading to higher stock prices. Conversely, during periods of economic contraction, demand for these products typically decreases, resulting in lower stock prices. This piece is dedicated to exploring some of the best hardware stocks to buy now, for investors that have the risk-tolerance to ride out near-term uncertainty.
Some of the most popular hardware and tool stocks among elite money managers include Lowe's Companies, Inc. (NYSE:LOW), The Home Depot, Inc. (NYSE:HD), and Caterpillar Inc. (NYSE:CAT). These stocks, among others, are discussed in detail below.
Our Methodology
We screened for hardware companies that had leading positions in the industry, healthy balance sheets, and robust business models. We gave weight to the market sentiment around each stock and then handpicked the ones that had positive market sentiment associated with them. Along with each stock, we have mentioned analyst ratings, the hedge fund sentiment, and salient features that make them good investment options. These stocks are ranked according to their popularity among institutional investors, from least to most.
Best Hardware Stocks To Buy Now
11. The Eastern Company (NASDAQ:EML)
Number of Hedge Fund Holders: 7
The Eastern Company (NASDAQ:EML) is a leading manufacturer of industrial hardware, security products, and metal products. Founded in 1858, the company is one of the oldest industrial businesses in the United States. The Eastern Company (NASDAQ:EML) is headquartered in Naugatuck, Connecticut.
The Eastern Company (NASDAQ:EML) is currently trading at an attractive valuation and is offering investors the optimal buying opportunity. The company is trading at a PE multiple of 9x, as of December 6, and is offering a forward dividend yield of 1.92%. The company is profitable and has a trailing twelve-month operating margin of 7.13%. The Eastern Company (NASDAQ:EML) is ranked among the best hardware stocks to buy now.
At the end of the third quarter of 2022, 7 hedge funds were bullish on The Eastern Company (NASDAQ:EML) and disclosed positions worth $31.10 million in the company. Of those, Barington Capital Group was the top investor in the company and held a position worth $10.89 million.
Some of the best-in-class companies operating in the hardware space include Lowe's Companies, Inc. (NYSE:LOW), The Home Depot, Inc. (NYSE:HD), and Caterpillar Inc. (NYSE:CAT).
10. The Toro Company (NYSE:TTC)
Number of Hedge Fund Holders: 18
The Toro Company (NYSE:TTC) is a leading global manufacturer and distributor of professional and residential equipment worldwide. The stock has gained 9.09% year to date and is one of the best hardware stocks to buy now.
This September, Northcoast analyst Tom Hayes upgraded The Toro Company (NYSE:TTC) to Buy from Neutral. The Toro Company (NYSE:TTC) is offering a forward dividend yield of 1.07%, as of December 6, and has a trailing twelve-month operating margin of 11.69%. The company has abundant cash resources and has disclosed free cash flows of over $100 million.
At the close of Q3 2022, 18 hedge funds held stakes in The Toro Company (NYSE:TTC). The total value of these stakes amounted to $919.35 million, up from $902.97 million in the previous quarter with 23 positions. As of September 30, Select Equity Group is the most prominent shareholder in the company and has disclosed a position worth $513.8 million.
Here is what Wedgewood Partners had to say about The Toro Company (NYSE:TTC) in its third-quarter 2022 investor letter:
“The Toro Company (NYSE:TTC) contributed favorably to performance during the quarter. The Company benefitted from pricing actions it took earlier in the year, offsetting rising input cost inflation. An important proof-point we consider when evaluating the competitive advantage of any business is whether margins can be maintained (or expanded), especially during periods of inflation. In addition, Toro continues to see robust demand for its professional and residential products. The Company has a backlog in its professional segment that is at its highest level since the year began, whereas residential products grew +7% on strong year and 2-year comparisons and despite many “home” categories across big-box retailers witnessing declines.
The Toro Corporation has an illustrious history stretching back to its founding in 1914. Many of us first encountered The Toro Company in the rite of passage when our parents finally relented in allowing us to cut the grass for the first time when we were barely taller than the lawn mower handle. From the Company’s humble beginning building tractor engines for the Bull Tractor Company in Bloomington, Milwaukee, the Company has methodically grown into the diversified conglomerate of today that today possesses industry leading brand awareness, market share, technological prowess, and profitability.
We are always enamored with a company’s beginnings, so herewith is the short story of The Toro Corporation’s storied history. The “Toro” name was chosen given its first relationship with The Bull Tractor Company, which according to Company documents was the #1 brand of farm tractors in 1914. Shortly after, in 1919, the Company created the mechanized golf course equipment industry with their invention of The Toro Standard Golf Machine…” (Click here to read the full text)
9. The Timken Company (NYSE:TKR)
Number of Hedge Fund Holders: 26
The Timken Company (NYSE:TKR) is a leading global manufacturer of bearings and related components and assemblies. Founded in 1899, the company has grown to become one of the world’s largest bearing manufacturers and has exposure to lucrative industries such as the automotive, aerospace, industrial, and railroads.
The Timken Company (NYSE:TKR) is placed on our list of the best hardware stocks to buy now. The company is profitable and efficient at making profits for shareholders. According to the company's balance sheet, The Timken Company (NYSE:TKR) has a trailing twelve-month operating margin of 13.96% and an ROE of 16.89%. As of December 6, the stock has gained 11.40% over the past six months and is offering a forward dividend yield of 1.68%.
Wall Street is bullish on The Timken Company (NYSE:TKR). On November 21, KeyBanc analyst Steve Barger raised his price target on The Timken Company (NYSE:TKR) to $88 from $75 and maintained an Overweight rating on the shares.
At the close of Q3 2022, 26 hedge funds disclosed ownership of stakes in The Timken Company (NYSE:TKR). The total value of these stakes amounted to $187.5 million, up from $151.6 million in the previous quarter with 24 positions. The hedge fund sentiment for the stock is positive. As of September 30, Citadel Investment Group is the dominant shareholder in the company and has a stake of over $36 million.
Here is what Vulcan Value Partners had to say about The Timken Company (NYSE:TKR) in its third-quarter 2022 investor letter:
“We purchased The Timken Company (NYSE:TKR) during the quarter. Timken Co. is a manufacturer of engineered bearings used in rotating motion equipment and related power transmission products. Its products are mission critical, have a high cost of failure, and only a relatively small cost to the customer. The company was spun out of Timken Steel in 2014, and since that time, the business has improved generating higher growth, higher margins, better positioning within end markets, and improved free cash flow. We think Timken’s scale along with its engineering abilities and technical expertise create high barriers to entry for competitors. Timken’s leadership team has significant ownership of the company, solid management incentives aligned with shareholder interests, and in our estimation are intelligent capital allocators. We have owned Timken in the past, and we are pleased to have the opportunity to own the company again.”
8. Stanley Black & Decker, Inc. (NYSE:SWK)
Number of Hedge Fund Holders: 26
Stanley Black & Decker, Inc. (NYSE:SWK) is a global industrial company that designs, manufactures, and markets a wide range of products and services for professional, industrial, and consumer markets. The company manufactures a broad range of products including power tools, hand tools, security solutions, and industrial solutions. Stanley Black & Decker, Inc. (NYSE:SWK) has a long history of strong financial performance and is well-positioned to benefit from the current global economic recovery.
On October 27, Stanley Black & Decker, Inc. (NYSE:SWK) posted market-beating earnings for the fiscal third quarter of 2022. The company reported an EPS of $0.76 and outperformed estimates by $0.06. The company's revenue for the quarter amounted to $4.12 billon and beat revenue expectations by $136.91 million. As of December 6, the stock is offering a forward dividend yield of 3.91% and is one of the best divided-paying hardware stocks to buy now.
On October 28, Mizuho analyst Brett Linzey revised his price target on Stanley Black & Decker, Inc. (NYSE:SWK) to $80 from $85 and maintained a Neutral rating on the shares.
At the end of Q3 2022, Stanley Black & Decker, Inc. (NYSE:SWK) was a part of 26 investors' portfolios that held collective stakes of $447 million in the company. Of those, Greenhaven Associates was the largest investor in the company and disclosed a position worth $99.75 million in the company.
7. Masco Corporation (NYSE:MAS)
Number of Hedge Fund Holders: 30
Masco Corporation (NYSE:MAS) is a leading global manufacturer and distributor of home improvement and building products. The company's revenue for the fiscal third quarter of 2022 was $2.20 billion, as reported on October 26, and the company generated an EPS of $0.26. As of December 6, Masco Corporation (NYSE:MAS) is trading at a PE multiple of 13x and is awarding shareholders with a dividend yield of 2.20%. Masco Corporation (NYSE:MAS) is one of the best undervalued and dividend-paying hardware stocks to buy now.
On October 27, Truist analyst Keith Hughes updated his price target on Masco Corporation (NYSE:MAS) to $60 from $70 and maintained a Buy rating on the shares. The analyst expects the company to outperform in fundamentals over the next year, on a relative basis.
At the close of Q3 2022, Masco Corporation (NYSE:MAS) was spotted on 30 hedge funds' portfolios that disclosed stakes of $369.4 million in the company. Of those, Harris Associates was the top shareholder in the company and held a position worth $251.7 million.
Here is what Oakmark Funds had to say about Masco Corporation (NYSE:MAS) in its second-quarter 2022 investor letter:
“We believe the market is failing to properly reward Masco (NYSE:MAS), a leader in home improvement products, for the significant upgrade of its business mix over the past decade. Having previously sold its more cyclical, lower return businesses, such as insulation, windows, and cabinets, what remains are some of the strongest and most recognizable brands in the industry. The company’s portfolio of products-primarily coatings (Behr) and plumbing fixtures (Delta, Hansgrohe)-are more resilient, lower ticket, and higher margin categories. Both segments compete within heavily consolidated industries, exhibit strong pricing power and skew meaningfully toward the less cyclical repair and remodel market. Despite its greatly improved business mix, Masco trades for just 10x next year’s expected earnings, which is a discount to historical levels and comfortably below a market multiple. We believe this dislocation presents an attractive opportunity to invest in a well-managed, high-quality portfolio in a sector that’s currently out of favor.”
6. Snap-on Incorporated (NYSE:SNA)
Number of Hedge Fund Holders: 34
Snap-on Incorporated (NYSE:SNA) is an American manufacturer and marketer of high-end tools, equipment, diagnostics, and related services for professional users. On November 4, Snap-on Incorporated (NYSE:SNA) raised its quarterly cash dividend to $1.62 per common share, up 14.1% from the prior dividend of $1.42. The dividend is payable on December 9 to stockholders of record on November 21. The stock is ranked among the best hardware stocks to buy now and, as of December 6, is offering a forward dividend yield of 2.65%.
At the close of the third quarter of 2022, 34 hedge funds were long Snap-on Incorporated (NYSE:SNA) and disclosed positions worth $409.16 million in the company. As of September 30, Ariel Investments is the dominant investor in the company and has a position worth $146.48 million.
Here is what Heartland Advisors had to say about Snap-on Incorporated (NYSE:SNA) in its second-quarter 2022 investor letter:
“Snap-on Inc. (NYSE:SNA) represents a typical holding in that its recent earnings performance, which easily topped analyst expectations, underscored the company’s ability to pass on higher costs to customers. Based in Kenosha, Wisconsin, Snap-on designs and manufactures professional-grade tools with a particular focus on the automotive-repair industry.
While the company was a top performer in the portfolio during the quarter, we believe its current valuation – trading at 12x earnings – leaves plenty of room to run. By comparison, peers trade at 15x earnings even though Snap-on has better margins and operates with less leverage than its competitors.
Meanwhile, several secular tailwinds, including an aging fleet of used cars and ever-increasing vehicle complexity, should prove beneficial to Snap-on’s business over the longer term. Snap-on’s history of distributing dividends, which has grown at a 7% CAGR over the past 35 years, underscores its financial discipline and is an added appeal.
Like Lowe's Companies, Inc. (NYSE:LOW), The Home Depot, Inc. (NYSE:HD), and Caterpillar Inc. (NYSE:CAT), Snap-on Incorporated (NYSE:SNA) is a hardware stock that is popular among elite hedge funds today.
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Disclosure: None. 11 Best Hardware Stocks To Buy Now is originally published on Insider Monkey.
