These industrial stocks nobody notices

2026-09-08 · By Lubin Danilo, founder of Lubin Investment

Analyze a stock on Lubin Investment

The specialty industrial machinery sector, elevators, pumps, marine engines, includes nearly two hundred listed companies. Checked today, ticker by ticker: only three still pass nearly all of my financial quality criteria. Their stock prices, meanwhile, range from eleven to more than thirty times the cash they generate, for specific reasons I break down one by one.

The last time you rode an elevator, you probably didn't spend a second wondering who built it, or who climbs into the shaft once a month to check the cable. Same with the container ship you might have spotted off a port, or the pump moving drinking water through your city without anyone noticing. These machines are everywhere, they rarely break down, and almost nobody thinks of them as a stock.

That is exactly the kind of business my quality screen likes to find: a physical need that doesn't go out of fashion, a captive customer once the equipment is installed, and billing that keeps going long after the original sale. My screener groups these manufacturers into a category financial media almost never names, specialty industrial machinery, elevators, pumps, valves, marine engines, packaging equipment. Nearly two hundred listed companies worldwide fall into it today.

This morning I checked, ticker by ticker on my own analysis tool rather than trusting a cached ranking, which of those two hundred still pass nearly all ten of my financial quality criteria. Only three are left. That wasn't the case a few weeks ago: most of the names I expected to still be at the top slipped a notch, almost all for the same reason, which I break down below. And among the companies that remain solidly rated, the price the market is willing to pay ranges from eleven to more than thirty times the cash they generate, for reasons I can explain one by one rather than chalk up to noise.

Why most of them lost a point this month

I score every stock on ten concrete criteria: is it profitable, do its sales and free cash flow (the cash that's actually left in the bank once every bill and every investment is paid) keep growing over time, does it buy back its own shares instead of diluting them, is its debt manageable, is its return on invested capital solid. Of the nearly two hundred specialty industrial machinery companies my screener covers, twenty three still pass at least eight of these ten criteria today. A month earlier, most of those same names passed nine.

Only three still hold nine or ten out of ten as I write this: Gorman-Rupp, a US pump maker already covered on my site, a perfect ten with not a single failed criterion; Krones, a German bottling and packaging line maker, nine out of ten; and Schindler, the Swiss elevator giant, nine out of ten as well. Every other solid name in the sector, Wärtsilä, Flowserve, AMETEK, Parker-Hannifin, Graco, KONE, Innio, slipped a notch this month, and six out of those seven tripped on the exact same criterion: revenue per employee, a productivity measure that separates growth driven by real efficiency gains from growth that simply comes from hiring more people. It's not a collapse, just a snapshot at a point in time, a reminder that a score is never permanent.

Wärtsilä (WRT1V.HE): the engines that move cargo ships, without the expensive price tag

Wärtsilä builds the large diesel, and now dual-fuel, engines that power a meaningful share of the world's merchant fleet, cargo ships, container vessels, LNG carriers, plus backup power plants used when the local grid is unstable. Building a marine engine of that size, able to run tens of thousands of hours without failing, isn't within reach of just any industrial manufacturer: the global market is split among a handful of players, Wärtsilä among them, and shipyards that have already built a brand's maintenance and spare parts into their fleet rarely switch suppliers midstream, for a simple reason, a badly maintained engine strands an entire ship.

The order book confirms that moat still holds. In the first half of 2026, Wärtsilä's order intake jumped 23% to €4.93 billion, with a record second quarter on its own, driven in part by orders for ammonia-fueled engines, a carbon-free fuel the shipping industry is only just starting to adopt to meet future emissions rules. The total order book now stands at €8.98 billion, up 13% year on year, several quarters of visibility that few industrial companies can show.

My model passes Wärtsilä on eight of my ten criteria, with one real weak spot, revenue per employee, already explained above. The rest of the scorecard is solid: no net debt, free cash flow per share growing more than 46% a year over five years, driven by margin expansion. And unlike Schindler or Krones further down, Wärtsilä isn't priced richly: at 11.9 times its annual free cash flow, my model puts it just 4% below my fair buy price, essentially at fair value. Not an obvious bargain, not a stock to avoid either, a rare case of solid quality priced at what the market thinks it's worth.

Schindler (SCHP.SW): the elevator that keeps billing long after it's sold

Once installed in a building, an elevator has to be inspected and maintained for decades to stay compliant with local safety codes. Switching maintenance providers partway through is rare: the newcomer has to take over the technical documentation of equipment it didn't design, along with the legal liability that comes with it in case of an accident. As a result, the manufacturer that sold the elevator almost always keeps the maintenance contract for the equipment's entire lifespan, often twenty years or more. At Schindler, maintenance and modernization now make up about 45% of group revenue, a revenue stream that doesn't depend on the pace of new construction.

Schindler's 2025 full year results, published in March 2026, illustrate that mechanism well: revenue grew just 1.3% in local currencies, but the operating margin rose from 11.2% to 13.0% over the year, driven precisely by that shift toward recurring maintenance rather than new elevator installations, a more cyclical and less profitable market.

Over five years, Schindler's sales have actually declined slightly, by 1.2% a year on average, which fails that specific criterion on my scorecard. But free cash flow per share climbs 34.6% a year over the same period, driven by margin expansion and steady buybacks. It's a useful lesson: a company whose sales are flat can still create plenty of value per share, as long as every dollar of revenue turns into more and more cash and the share count keeps shrinking. The catch is the price: at 19.8 times its annual free cash flow, my model shows Schindler trading 36.6% above fair value. An excellent business, but not one I would buy at this level.

Flowserve (FLS): the pumps and valves that keep billing after the first invoice

Flowserve makes industrial pumps, valves and seals used in oil and gas, chemicals, and increasingly civilian nuclear power. Just like with Wärtsilä, the initial sale is only the opening chapter: a refinery or power plant that installed a Flowserve pump keeps buying spare parts and after-sales service for the equipment's entire lifespan, often several decades, because swapping a critical part for one from another supplier requires an expensive new certification. That flow of parts and service, what the industry calls the aftermarket, weighs more and more in the group's results.

In the second quarter of 2026, Flowserve booked $1.35 billion in new orders, up 26% year on year, with a record level of aftermarket bookings. The group also closed the acquisition of Trillium Flow Technologies' valve division on June 30, 2026, a bet on rising demand for certified nuclear equipment, a market with a particularly high regulatory barrier to entry. On the other hand, Middle East sales have declined by about $60 million since the start of the year, a reminder that even a business of this quality remains exposed to regional geopolitics.

My model passes Flowserve on eight of ten criteria, with the same weak spot as Wärtsilä on revenue per employee, and slightly tighter debt, payable in 3.8 years of cash generated versus under 3 years in the ideal case. At 26.5 times its annual free cash flow, the stock trades at a modest 7.4% discount to my fair buy price, a profile between the two names above, neither the best deal nor the priciest in the group.

The table: the same quality scorecard, a near threefold gap on price

Line these multiples up side by side and a pattern emerges: the more a business model depends on recurring maintenance contracts and a moat that's hard to route around, the more the market is willing to pay, and vice versa. One name deserves a warning before the table: Krones, the German bottling line maker, shows the lowest P/FCF in the group, just 11.5 times, which might look like the best deal here. But its cash per share jumped 22.6% a year over five years, a pace my model deliberately doesn't carry forward as is, that strong an acceleration almost always cools off. Once that expected slowdown is priced in, my fair buy price falls well below the current stock price, hence a 73% premium despite a headline multiple that looks cheap. The number alone would have been misleading.

My take: no obvious bargain, three names worth watching

None of the ten jumps out as a clear discount paired with a near perfect score, the combination I like best. Gorman-Rupp, the only perfect ten, trades at a modest 4.7% premium, essentially at fair value. Wärtsilä and Innio, at eight out of ten but priced below my target, are the two names I'm watching most closely: solid quality, one missing criterion on employee productivity, and a price that still leaves a small margin of safety. Krones, Schindler, KONE, AMETEK and Parker-Hannifin share something in common, real quality, but a price that has already priced in that quality and then some. That's not a reason to sell if you already own them, but it's not a reason to buy at this level under my method either. You can check every one of these ten profiles live on my analysis tool, and see how I calculate a fair buy price in my full methodology.

FAQ

What counts as a 'specialty industrial machinery' company?

It's a stock market category covering makers of highly specific industrial equipment rather than mass market goods: elevators, pumps, valves, marine engines, packaging machinery. These are almost never household names, but their products are essential to industry, infrastructure and shipping, which gives them steady, durable demand.

Why is Wärtsilä cheaper than Schindler when both score well?

The business model differs. Wärtsilä sells new engines for ships and power plants, a more cyclical market tied to shipbuilding orders. Schindler draws about 45% of revenue from recurring maintenance contracts on elevators already installed, a far more predictable income stream. The market generally pays more for that predictability, which explains much of the valuation gap between the two.

Can a company with declining sales still be a good stock?

Yes, as long as the cash generated per share keeps growing. That's the case with Schindler: sales have edged down slightly over five years, but free cash flow per share climbs 34.6% a year thanks to margin expansion and buybacks. It's not the general rule, but a concrete example that revenue alone doesn't tell the whole story.

Does a low P/FCF always mean a stock is undervalued?

No, Krones in this article is a good example. Its P/FCF of 11.5 times is the lowest in the group, but its recent pace of free cash flow per share growth, 22.6% a year, is likely temporary. Once that expected slowdown is accounted for, my model puts the stock at a 73% premium despite that attractive-looking multiple.

Related reading

• Colgate-Palmolive or L'Oréal: which stock to buy?
• AZZ (AZZ): Q1 2027 results, my verdict
• Gorman-Rupp and Trelleborg: two quality industrials

Analyze a stock on Lubin Investment

About the author

Written by Lubin Danilo, founder of Lubin Investment. A self-taught individual investor, I find fundamental analysis fascinating, and it has delivered excellent results. For three years now, my performance has beaten the S&P 500. But analyzing every stock took too much time: sites with incomplete data, calculation methods and criteria never aligned with mine. And spotting the best stocks was just as time-consuming, even with my own well-defined checklist. So I put my software development background to work to build this software, base my investment strategy on its results, and share it with people who share the same passion as me. It judges a company's quality and its price separately, using criteria drawn from the financial literature (Warren Buffett, Michael Mauboussin, Aswath Damodaran).