As I noted in my last update on Gates Industrial (NYSE:GTES), the market was starting to move off of short-cycle industrials as investors pursued greener pastures for growth. I had thought that stronger first and second quarter earnings and healthy guidance would maybe lead to some rethinking, but so far I was only half-right – Gates, and many other short-cycle names, reported better results, but it hasn’t changed sentiment and several quality short-cycle names have continued to weaken.
Basically flat since my last update, Gates still looks interesting to me on a long-term basis. I like the long-term opportunity in chain-to-belt transitions in multiple industrial markets, as well as the opportunity to leverage further growth in automation and a switch to electrification in personal transportation. Although I see pretty interesting return potential, I wouldn’t ignore that sentiment issue where short-cycle names as concerned, as fighting the tape is a tough way to try to make money.
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