Shares in UPS (NYSE: UPS)aerospace materials company Hexcel (NYSE:HXL)and security doors and locks company Accusation (NYSE: ALL) have all experienced a significant decline so far in 2024, lagging the S&P 500 index’s 14.6% gain over the same period. However, compelling evidence suggests all three are positioned to outperform the market in the second half and beyond. Here’s why.
The Investment Case for UPS Stock
UPS, the package delivery giant, faced a tumultuous 2023, with some challenges continuing into the first half of 2024. Slowing economic growth has led to declining volume and revenue growth. A costly resolution of the employment contract further aggravated the situation. To make matters worse, lengthy labor negotiations led to customers diverting deliveries to other networks for fear of a strike.
However, these headwinds will turn into tailwinds in the second half, as management believes that year-over-year volume growth will begin in the second quarter in the U.S. Meanwhile, the cost increases from the labor contract are now showing up in the numbers, so year-to-date comparisons will be easier. UPS is cutting 12,000 jobs in response to weaker demand.
All signs point to a stronger second half, with management expectations calling for adjusted operating profit to increase by 20% to 30% in the second half compared to the same period in 2023.
The key to the turnaround, and metric investors should pay close attention when UPS reports its second-quarter earnings on July 23, is a return to U.S. delivery volume growth. Management previously said it expected slightly positive average daily volume growth in the US in the second quarter. If that happens, UPS will be well on its way to recovery in 2024.
Hexcel investors worried about Boeing
There is little doubt that Hexcel has great long-term growth prospects. Its advanced composites offer a weight and strength advantage over traditional materials such as aluminum. That’s a big deal in aerospace because it helps optimize fuel efficiency and reduces lifecycle operating and maintenance costs, especially for widebody aircraft.
As such, there is a clear trend towards new aircraft using more advanced composite materials. In the meantime, Boeing And Airbus have years of backlogs and want to increase production. Everything points to a bright future for Hexcel.
That said, there will be some short-term turmoil in 2024, which is why the company’s stock has fallen.
In short, since there is little demand for Hexcel’s products in the aftermarket, Hexcel may feel this in its orders when aircraft deliveries slow down to one of its ultimate end customers, in this case Boeing. Unfortunately, the delay at Boeing is creating uncertainty and making investors concerned. Furthermore, Hexcel has built its infrastructure to support future solid growth, limiting profit margins in the short term.
All things considered, it’s understandable that investors are concerned. Still, these are short-term issues, and Boeing will certainly ramp up its aircraft production in the second half of the year and increase it going forward. As such, Hexcel investors can look forward to a continued recovery in revenue and margin growth in the coming years.
Allegion secures the future
The security door and locksmith also has a bright future. It is leading the movement towards the convergence of electronic and mechanical security products, which has numerous benefits. Wireless technology allows building owners to monitor and control access areas remotely. As a result, they can reduce shrinkage, improve security, grant and deny access on a daily basis, and improve workflow productivity by knowing which employees are in which areas at all times.
The added value is significant, and considering that only about 30% of sales come from electronic products and the adoption rate of electronic locks in North America is only 10%, there is plenty of growth potential.
Still, investors are concerned about the company’s exposure to the North American housing market in 2024. It doesn’t help that total revenue in the first quarter fell 3.6% organically from a year earlier.
However, both problems will likely prove to be temporary. The North American housing market will improve in a lower interest rate environment. Additionally, the first quarter revenue decline is largely due to a difficult comparison to the first quarter of 2023, when organic sales increased 15% on an organic basis. In a two-year comparison, sales increased 5.3% on a compound annual growth rate basis.
The share price decline therefore appears to be an excellent buying opportunity in a story of long-term growth.
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Lee Samaha has no positions in the stocks mentioned. The Motley Fool recommends Hexcel and United Parcel Service. The Motley Fool has a disclosure policy.
These 3 Stocks Have Fallen In 2024, But Look Set For A Dramatic Rebound In The Second Half was originally published by The Motley Fool
