With the S&P 500 somehow back up to within 1% of its all-time highs, analysts and investors alike are playing catch-up. Janney has revisited its industrials and chemicals picks, and the firm is currently recommending purchases of four stocks while remaining cautious on two due to valuations.

The firm also included each closing share price when the S&P 500 was at its 52-week high, and its upside targets have been identified as well. Consensus analyst target price data from Refinitiv has been included. As a reminder, most Buy and Outperform ratings come with 8% to 10% in implied upside at this stage in the 10-and-a-half-year-old bull market.

Mueller Water Products Inc. (NYSE: MWA) had a closing price of $10.09 when the S&P 500 hit its 52-week high on July 26, and shares were a bit above $11 on Friday. Janney’s target price of $14 gives an implied upside of 28%, and the consensus target price was $11.64 on last look.

The firm noted that the company’s geographic exposure is mostly North America, and that positions it favorably to ride out the current volatile economic environment due to tariffs and trade deals in progress. The report said:

Raw material costs (particularly scrap metal) can be a wildcard, but the company has consistently been able to recover higher raw material costs via price increases. The FY3Q19 results were better than expected, and the forward outlook offered on the conference call was positive. For investors looking for 1) favorable valuation (P/E of 14x FY21 consensus estimates), 2) strong North American geographic exposure, and 3) minimal anticipated impacts from tariffs, Mueller Water Products shares are worthy of consideration.

Quaker Chemical Corp. (NYSE: KWR) has seen a tremendous amount of volatility, as the $168.50 share price compares with a 52-week range of $149.09 to $224.30. Janney has lowered earnings expectations for 2019, 2020 and 2021 after the earnings results, primarily due to forecast changes surrounding the Houghton acquisition, which affected valuation.

The firm has a $202 fair value estimate, which leaves just over 20% in implied upside, and it was at $189.31 a share when the S&P hit its highs earlier this summer. Quaker has a consensus target price of $184.75. Janney’s report said:

That aside (and looking forward), with major economies showing signs of slowing growth, Quaker’s acquisition of Houghton provides substantial flexibility to reduce costs while maximizing cross-selling opportunities across the product platforms. The company also announced its acquisition of Norman Hay Plc for $98MM on August 29th. The shares have traded as high as $224 and as low as $149 in the past 52 weeks, and are now sitting at $168, which represents a P/E of 20x our 2021 EPS estimate of $8.40. We believe they’ll trade to 24x the aforementioned 2021 EPS estimate, which equates to a Fair Value estimate of $202, representing 20% upside from the current price level.

Rexnord Corp. (NYSE: RXN) was given 22% in implied upside to Janney’s fair value estimate of $35. That is above the consensus target of $31.10, and its shares were last seen trading at $28.74. The firm believes Rexnord’s current guidance for adjusted EBITDA of $460 million to $475 million and net income between $181 million and $191 million could have further upside, given the better-than-expected results. Janney’s report said:

Anticipated core sales growth in the low single digits and improvements in margins are the main drivers of our positive investment thesis. The company does have significant global exposure (FOREX translation had a -2% impact on sales during FY1Q20) and its forward outlook for Europe in the Process & Motion Control segment is decidedly negative, but possibly suggests a worst-case scenario (and perhaps minimal future downside in that region). Free cash flow and net debt leverage ratios improved in FY18 and FY19, and our view is that valuation is beginning to reflect strengthened (and strengthening) financial metrics.

Xylem Inc. (NYSE: XYL) has traded in a narrow range since the company reported earnings and narrowed its guidance. The Janney call came with a fair value estimate of $85 (down from $86 previously), and the price of $78.07 compares with a prior high of $81.48 when the S&P hit its high. Xylem’s consensus target price is $81.40. The Janney report said:

End market conditions have moved around a bit thus far in 2019, with Utilities strengthening and Industrial/Residential weakening. While North American end markets remain strong, European end markets are weak. We modestly lowered our estimates for 2019/2020/2021 after the 2Q19 results, with a very minor impact on valuation (we dropped our Fair Value from $86 to $85, based on a P/E of 21x our 2021 EPS estimate of $4.05). Despite a slightly diminished outlook, our investment thesis remains favorable, and we see 7% upside from current price levels.

Janney’s two Neutral-rated names are IDEX Corp. (NYSE: IEX) and Watts Water Technologies Inc. (NYSE: WTS), based on full valuations.

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