Every investor knows not to put all their eggs in one basket. But with a limited amount to invest, you also don’t want to spread your money too thin. Buying a small quantity of shares of too many different companies will have commissions and transaction fees eating away at your investment.
So a stock like the one we’ve got today is the perfect solution. And it could double your money in short order.
For just over $50 a share, this company gives you a stake in three different growth industries:
- Brand Solutions: It’s a one-stop shop for brand development, activation, and deployment. Its clients in this field have included The Coca-Cola Co. (NYSE: KO), Ben & Jerry’s, and Air France.
- Memorialization: It’s a leading provider of products to funeral homes and cemeteries to help families get through their grief and honor their loved ones.
- Industrial Technologies: It manufactures and distributes hardware and software to automate industrial tasks like product labeling and identification – and even to guide self-driving vehicles.
At this point, you might be scratching your head: How does one company operate in such radically different segments?
The shop was quickly renowned for its master craftsmanship, attracting businesses developing their brands as well as funeral homes looking for top-notch memorial products. As the company developed its expertise in mass printing, industrial automation became a key productivity booster.
As the decades passed, the company separated into three major categories, and it has kept up with the increasing specialization in these fields to become far more than just an engraving operation.
Today it employs 11,000 people on six continents, and it remains an industry leader in all three of its seemingly disparate segments.
So thanks to this atypical evolution, we’ve got a solid dividend payer that’s tapped into not one, not two, but three industries that are all on the rise.
Best of all, its current share price is less than half its true value. So shareholders can look forward to a sharp rise, followed by steady returns for years…
Three Different Industries, Same High-Quality Work
The engraving shop that would become Matthews International Corp. (Nasdaq: MATW) was opened in 1850 by John Matthews. The goal for the shop was simple: to be the pre-eminent provider of high-quality engraved identification products.
That ambition led to a set of guiding principles that has ensured the company’s success for generations.
That included the principle that “what’s good for the employees is good for the company, and that’s good for the customers.” Matthews was providing its employees with benefits like life insurance and profit participation decades before it would become common.
What’s good for the employees and the customers is good for the investors too. The company’s ability to attract and keep top talent has kept Matthews an industry leader in each of its three branches.
Brand Solutions: MATW’s brand-development business, SGK Solutions, generates about half the company’s revenue. It’s actually an umbrella for six different agencies that specialize in various aspects of the branding process. These are more than just consultants: They can take a project from concept to design to customized printing plates for packaging.
Some of SGK’s work is elegantly simple, like the understated graphic design and packaging of French retail giant Monoprix’s fresh “Food To Go” items.
And some of it is positively eye-popping, like the graffiti-inspired custom-made Wolf Blass wine bottles designed in tandem with Hewlett-Packard Enterprise Co. (NYSE: HPE). The bottles were featured at two of Australia’s leading print shows to demonstrate the power of great brand design.
Contrary to popular belief, brand recognition is as important today as it’s ever been.
A survey by research firm Jefferies revealed that the younger generation does indeed support local and independent brands more often than older generations do. But it typically does so at the expense of lesser-known and less-respected national and worldwide brands.
That is, millennials are still flocking to the major brands they know and love at a high rate. It’s the brands that aren’t putting as much into their branding initiatives that are getting passed over.
So the work that SGK does is often what allows a brand to survive in today’s more competitive environment.
Memorialization: The business of memorializing the deceased is a sensitive one, but somebody has to do it. And who does it is important.
This is unfortunately an industry filled with unscrupulous actors, who use families’ grief as a license to charge exorbitant prices for low-quality products.
So a company that has prided itself on delivering top-notch quality for more than a century and a half is a welcome comfort for families going through a difficult moment in their lives.
Matthews Memorialization, which generates about 40% of the company’s total revenue, offers a highly customizable range of products – from simple caskets and headstones to intricate memorial pieces – to reflect a wide range of identities and tastes.
Today, many in the West are opting for cremation and low-cost memorial options. Matthews has an extensive line of products to accommodate this trend. They help lower costs for families and cemeteries alike, while honoring their individual and religious wishes.
Matthews even manufactures cremation equipment and offers several products that minimize the environmental and economic waste of funeral services. To date, the Environmental Solutions department has made over 5,000 installations on seven continents – including Antarctica.
The demand in this industry is, of course, never-ending. And though that means many opportunities for hucksters, they are unlikely to thrive as long as Matthews has already and will continue to do.
Automation Solutions: At a little under 10%, the industrial solutions division makes up the smallest amount of Matthews’ revenue. But thanks to rapid growth in this industry, that could change in the not-too-distant future.
According to research firm Mordor Intelligence, the global industrial automation market is expected to rise from $216.9 billion in 2017 to $381.7 billion by 2023 – more than 75%.
Automation is one of the key technologies being implemented today to boost overall productivity. As we’ve written elsewhere, it’s not just about replacing human workers. It’s about freeing up humans to do what they do best, which doesn’t just save costs but improves both the quantity and the quality of the final product.
Matthews Automation Solutions grew out of its other businesses with products to automate the marking and branding processes for merchandise and packaging. But over the decades, the industrial solutions division has expanded to include a variety of hardware and software for picking, packing, shipping, and other warehouse and factory processes.
The 2017 acquisition of Guidance Automation now gives Matthews a play in the driverless vehicle revolution, particularly in regard to industrial applications. Guidance Automation software is employed in warehouses and other industrial settings and can be combined with other technologies by Matthews to enable lightning-fast order fulfillment.
As more and more businesses upgrade their operations to stay competitive in the tech age, Matthews is likely to see major growth in this division.
All three divisions of the company reported increased sales last year. When you combine the quality of the work with the growth of the industries, this stock should be a winner for many years.
But what really makes it exciting is how undervalued it is at the moment…
Crunching the Numbers: MATW Is Due for a Big Bounce
Matthews has increased its earnings per share (EPS) every year since 2012 and is projected to rise nearly 50% by 2020. Sales are up every year since 2009 and have doubled in that time.
Its cash flow from operations, which Money Morning Technical Trading Strategist D.R. Barton, Jr., says may be the most important indicator of financial health, has risen 63% from $91 million in 2014 to $149 million in 2017.
Plus the stock delivers a 1.5% yield. The payout was raised 13% last year and is still at just a 23% payout ratio, making this a very safe bet to continue.
According to FactSet, three out of three analysts rate MATW “Buy” or “Overweight.” And B Riley FBR Inc. set a target price of $92 – a 78% rise from its current price.
It’s easy to see why analysts would consider this stock undervalued when we look at some of its key value metrics. Its trailing price/earnings (P/E) ratio is 16.9, compared to an industry average of 36.90. And its forward P/E ratio is just 42% of the industry average at 12.2.
The price-to-book value, which compares the stock price to the company’s assets, is at 1.9, compared to an industry average of 3.
So, conservatively, we can expect a 58% pop in share price. But based on its expected earnings growth, MATW is due for a 136% gain.
In short, Matthews Industrial offers the best of both worlds…
It’s a well-diversified stock that’s been around for almost 170 years and is still growing thanks to three different profitable industries. Once you buy it, you can hold it for a very, very long time.
Plus, if you get it now, you can look forward to a big spike in share price on its way soon, once the market realizes its mistake.
— Stephen Mack
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Source: Money Morning