3 Stocks to Watch From the Promising Air Conditioner & Heating Industry

Core Insights - The Zacks Building Products - Air Conditioner & Heating industry is well-positioned to benefit from the energy transition and pro-environmental trends, with growing demand for renewable solutions expected in 2024 and beyond [1][3] - Companies like Watsco, Comfort Systems USA, and AAON are capitalizing on maintenance and repair services, alongside effective cost management practices, despite inflationary pressures [1][4] - The industry has shown strong performance, outperforming the broader Zacks Construction sector and S&P 500 over the past year, with a 58.4% gain compared to 37.1% and 21.4% respectively [8] Industry Overview - The industry includes designers, manufacturers, and marketers of products for heating, ventilation, air conditioning, and refrigeration, covering a wide range of equipment and services [2] - Key products include rooftop units, chillers, air-handling units, and various HVAC components, serving residential, commercial, and industrial markets [2] Trends Impacting the Industry - U.S. administration's focus on reducing greenhouse gas emissions is driving demand for clean energy systems, benefiting companies involved in controlled-environment agriculture [3] - Continuous investments in technology and e-commerce are vital for enhancing customer experience and expanding market reach [4] - The industry is experiencing stable revenue from maintenance and repair services, which are less affected by fluctuations in the construction market [4] Challenges Faced - Rising raw material costs and supply chain issues have impacted profit margins, alongside increasing operating expenses [5] - The industry is subject to stringent regulations regarding energy efficiency and emissions, which pose additional challenges [5] Market Performance - The Zacks Building Products - Air Conditioner & Heating industry holds a Zacks Industry Rank of 36, indicating strong near-term prospects [6] - The industry's forward 12-month price-to-earnings ratio is currently at 29.5X, higher than the S&P 500's 19.8X and the sector's 16.4X [9] Notable Companies - Watsco, Inc. (WSO): The largest distributor of HVAC equipment in North America, with a 45% stock gain over the past year and expected earnings growth of 7.8% in 2024 [12] - Comfort Systems USA, Inc. (FIX): A national provider of HVAC services, with a 74.7% stock gain and projected earnings growth of 13.5% in 2024 [13] - AAON, Inc. (AAON): Focused on air conditioning and heating equipment, with a 44% stock gain and expected earnings growth of 9.6% in 2024 [15]