3 Instruments Stocks Set to Ride on Digitized Technology Demand

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 control systems expected to drive growth [1][2] - The industry comprises 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 industrial automation and higher investments in new technologies are anticipated to propel growth, particularly in North America, supported by infrastructural investments in energy and power sectors [4] - Solid demand for power generation, especially in Asia, and the need for backup power for data centers are contributing to growth momentum in the industry [5] - The emphasis on digitized technologies, such as the Industrial Internet of Things, is driving demand for process automation and instrumentation products, which enhance product quality and reduce emissions [7] Challenges - Elevated customer inventory levels and geopolitical challenges may negatively impact the process automation and instrumentation market [2] - Material cost inflation and rising transportation costs are affecting industry margins, with companies struggling to pass on increased raw material prices to customers due to competitive pressures [6] Market Performance - The Zacks Instruments – Control industry has underperformed compared to the S&P 500 and the broader Zacks Computer and Technology sector over the past year, with a growth of 6.7% compared to 15% and 21.3% respectively [10] - The industry has a trailing 12-month EV/EBITDA ratio of 11.6X, lower than the S&P 500's 16.77X and the sector's 17.89X, indicating potential undervaluation [10] 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 8% [13] - Badger Meter, Inc. (BMI): Provides flow measurement and control solutions, with a focus on digital solutions and a long-term earnings growth expectation of 17.9% [15] - Transcat, Inc. (TRNS): Offers calibration and inspection services, with a focus on the life sciences market and a long-term earnings growth expectation, having gained 21.8% over the past year [16]