German industrials spotlight: Industrial machinery

We find it interesting that several industrial machinery stocks appear at the top of our rising revisions screen this month. Earnings in this sector are sensitive to the economic cycle, which appears at odds with weak macroeconomic data released in recent weeks. In particular, German GDP fell by -0.6% in Q412 and the Ifo business expectations survey fell to 101.6 in April (vs 103.6 in March). In addition, GDP growth in China slowed to +7.7% year-on-year in Q1 vs market expectations of +8%. We believe there are other, more specific, factors at play including the continued success of German global exports and the potential for gross margins across the sector to expand as metal prices decline. On a wider scale, central banks continue to provide ongoing liquidity and maintain interest rates at low levels; this encourages capital flow into cheaper, riskier assets such as industrial machinery stocks. We identify three companies in this sector that screen well and should attract investors; Koenig & Bauer, KSB and Schaltbau. Koenig & Bauer is a company we have previously highlighted and is one of only three stocks to make the top 20 in both our value and momentum screens.

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