The industrial sector isn't the first place investors look when scouting for new investments.
It's understandable – the sector contains companies such as Boart Longyear Ltd. (ASX: BLY) and Austin Engineering Ltd. (ASX: ANG) which have lost more than 90% of their value over the past five years as the mining investment and construction boom winds down.
What you might not know is that the S&P/ASX 200 Industrials index returned 21.5% over the past year, outperforming the high-flying S&P/ASX 200 Health Care index that delivered 17.8%, indicating there are plenty of successful companies hiding in the rough.
To find these high-performing and possibly unloved companies, I searched the industrial sector for profitable businesses with a good dividend yield and a market capitalisation between $200 million and $1 billion. Here are two of the best ideas from the group:
Austal Limited (ASX: ASB) is a leading defense contractor specialising in the design, construction and maintenance of high-performance vessels for defense and commercial purposes.
Its order book currently stands at $3 billion to produce vessels for clients including the United States Navy, the Australian Border Force and the Royal Navy of Oman.
Net profit for FY15 increased by nearly 70% from $32 million to $53 million and cash flow from operations nearly tripled to $110 million.
As a trusted contractor with a long history of shipbuilding excellence, Austal looks set to continue winning work and could make an excellent long-term investment. Investors buying today will also receive a 2.4% fully franked dividend yield.
SG Fleet Group Ltd (ASX: SGF) is a specialist vehicle management and leasing company, with operations in Australia, New Zealand and the United Kingdom. After listing on the ASX in March 2014 at $1.85 it is now trading around $2.90, but there could be more to come.
SG Fleet's customer base is split 50/50 between government-related organisations and private sector businesses. The average length of relationship for its top 20 customers is over 11 years, providing a high level of recurring revenue.
For FY16, SG Fleet recently advised it was on track to deliver another year of strong profit growth around 10-15%. This could provide another boost to the fully franked dividend that is currently yielding around 4%.
Foolish takeaway
Searching amongst the smaller businesses and unloved sectors of the ASX will often turn up some interesting and potentially rewarding investment ideas, including Austal and SG Fleet.
