Atkore Setting Up for a Powerful Q4 Rally

In today’s article, I’m going to discuss why I believe Atkore (ATKR) is a stock that traders and investors should consider buying due to its short and long-term upside potential. 

ATKR was founded in 1959 and is one of the industrial suppliers in the US. It produces and sells a variety of products including electrical conduits and fittings, metal framing and fittings, mechanical pipes, modular support structures, etc. It offers its products under the sub-brands: Allied Tube & Conduit, AFC Cable Systems, Heritage Plastics, Unistrut, Power-Strut, Cope, Calpipe brands, etc.

The company has successfully grown over the years organically and through acquisitions. Currently, it has a very attractive valuation while posting very impressive earnings and revenue growth. Further, it’s exposed to a variety of positive trends such as infrastructure spending, housing construction, and capital expenditures. Due to these characteristics, positive seasonality, and a bullish Q4 setup, investors should consider buying ATKR. 

ATKR Fundamentals

ATKR is a cheap growth stock with several potential catalysts that should lead earnings to compound at a healthy rate over the next few years. These catalysts include the growth in infrastructure spending, increased homebuilding, and increasing levels of CAPEX spending over the next decade. 

While these are future sources of growth, ATKR is already thriving due to the rebound in industrial activity. This is evident as analysts have been furiously hiking their EPS estimates for 2021 and 2022. 2022 EPS has been increased by 25% over the past quarters and 2021 EPS estimates have been hiked by 18%.

Usually, such earnings growth comes with a trade-off in terms of value. This is not the case with ATKR which has a forward P/E of 12.8 which is nearly half of the S&P 500’s forward P/E of 22. 

ATKR’s stock price has been essentially flat since May, while it continued to post impressive earnings growth, resulting in a very attractive valuation. 

Catalysts

ATKR is at the intersection of several, positive macro trends which should drive meaningful earnings and revenue growth over the next decade. Further, as an industrial company with market leadership in several areas, it also should outperform in an inflationary environment. 

In terms of infrastructure spending, there is expected to be a cumulative $11 trillion in infrastructure spending over the next decade by governments all over the world. Of course, the US is expected to pass a $1 trillion+ package before the end of the year as well. 

Similar to governments, businesses are expected to increase CAPEX spending over the next decade. This year, capital spending is expected to grow 15% and continue growing at a double-digit rate. The pandemic revealed that our supply chains are quite fragile and haven’t kept up with the world’s demand growth. This is evident in multiple areas such as energy, semiconductors, and autos. ATKR will be a major beneficiary as companies reinvest in increasing and maintaining capacity. 

Bullish Q4 Setup

Another reason to like ATKR is that the stock seems ripe for a breakout following its five-month consolidation. One positive catalyst is that Q4 is considered to be one of the most bullish periods for the market with an average gain of 4%. However, industrials in Q4 have an average gain of 6%.

Further, this year’s setup is even more bullish as fund managers are underinvested and underperforming the market which favors them piling into stocks as they seek to make up the gap with their benchmarks.  Normally, they would be piling into high-beta, tech stocks, however this year, I believe they will favor sectors like industrials, materials, and energy due to strength in rates. 

Therefore, investors should consider stocks like ATKR which should benefit from this year-end trade. 

POWR Ratings

ATKR is one of the top-rated stocks according to the POWR Ratings with an overall A rating, which equates to a Strong Buy. The POWR Ratings are calculated by looking at 118 different factors to determine its future upside potential. A-rated stocks have enjoyed an average annual return of +30.72% which is four times better than the S&P 500’s average annual 7.1% gain since 1999.

The POWR Ratings also evaluates stocks by various components to give additional insight. It’s not surprising that it has an A for Growth and a B for Value given revenue growth of over 100% and earnings growth of over 40%. It also has an A for Quality which makes sense as it’s one of the leading suppliers of multiple components that are essential for housing, construction, and industrial projects. Given that these parts of the economy are in expansion mode, ATKR should benefit as well.

Conclusion

ATKR is a phenomenal opportunity from a variety of perspectives. It’s rare to get this combination of growth and value, especially with so many looming catalysts.

ATKR shares were trading at $88.30 per share on Tuesday afternoon, down $0.62 (-0.70%). Year-to-date, ATKR has gained 114.79%, versus a 17.36% rise in the benchmark S&P 500 index during the same period.

Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. He is the Chief Growth Strategist for StockNews.com and the editor of the POWR Growth and POWR Stocks Under $10 newsletters. Learn more about Jaimini’s background, along with links to his most recent articles.

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