Alfa Laval's Resiliency Back In The Share Price

There are some stocks out there that always (or almost always) get the benefit of the doubt when it comes to valuation – names like Atlas Copco (OTCPK:ATLKY) and Danaher (DHR) spring to mind pretty readily – and then there are names where it seems like the market is more apt to just somehow “forget” the underlying quality of the business, and I think Alfa Laval (OTCPK:ALFVY) fits in that group. While there are undeniable cyclical parts to the business, I believe the volatility in the share price is outsized for a company with a good full-cycle track record when it comes to returns on invested capital, free cash flow, and other metrics.

I thought the market was overly spooked by second quarter results and guidance and that the shares looked appealing back in July. With a nearly 30% move in the ADRs since then, as part of a bigger rally in many industrial names, the undervaluation is more or less gone now and the annualized prospective returns seem more in line with the 6% - 8% range that is common now for quality industrials (Dover (DOV), Honeywell (HON), Rockwell (ROK), et al). As such, I think Alfa Laval is a decent hold and a name to consider adding on pullbacks along the way.

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Alfa Laval's Resiliency Back In The Share Price