Kennametal (KMT) vs Hillman Solutions (HLMN) — Industry Showdown

If you’ve been investing for more than a couple of months, you’ve more than likely heard the phrase “picks and shovels play”.

The underlying rationale behind these trades is simple. While everyone else is rushing to buy into the flashy, headline-grabbing stocks, you do the opposite — invest in the companies that make the necessary supply chains possible, and voila — you have a stake in something that has both a growth trajectory and a more appealing valuation.

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There’s a reason why this became an enduring phrase, emblematic of a time-tested approach to investing. It (often) works — and provided that you do the legwork with metrics, there’s enough of a reasonable investing rationale to back up such a play.

However, we often forget the inspiration behind the tale — the actual, real-life “picks and shovels” stocks. Sure, it’s not the sexiest sector to consider — but as we said, the rationale is there, and if the metrics are there — why not?

Tech, artificial intelligence, blockchain, and numerous other narratives hog up the spotlight — but industrial tools make those sectors, as well as the entirety of modern economies, possible. So, let’s take a look at the top dogs in the modern picks and shovels space.

So — today we’ll be taking a look at the two highest-rated stocks in the Tool & Accessory industry, which has an Industry Rating of A, and which is currently our 4th highest-rated industry out of a total of 145.

Those stocks are Kennametal (NYSE: KMT) and Hillman Solutions (NASDAQ: HLMN). The former ranks in the top 1% of the stocks that we track, and is rated 12th overall. The latter ranks in the top 5% — and is rated 212th. 

Open and shut case, right? Not necessarily. When you’re working with over 4600 stocks, both are pretty impressive overall.

So which is the winner? 

To understand, let’s back up and look at the Zen Ratings for each.

Each Zen Rating consists of 7 Component Grade ratings. When it comes to most of these, KMT has the clear advantage. HLMN ranks in the 52nd percentile in terms of Value, for example — while KMT ranks in the 91st percentile.

Kennametal shares are also more appealing when it comes to Momentum — they’ve seen a 83.52% rally in the past 365 days, compared to Hillman Solutions’ 3.66%.

Here’s where it gets tricky. The difference is much smaller when it comes to the Sentiment rating. This isn’t just a measure of analyst expectations — those factor in, of course, but we also take into account earning surprises, short interest, and insider selling and buying. KMT ranks higher here — in the top 16%, compared to HLMN’s top 28% — but the average price target for KMT implies a 14.19% downside, while the average price target for HLMN implies a 28.82% upside.

The two stocks rank very comparably in terms of Financials and Artificial Intelligence. One area where Hillman Solutions does rate higher is Growth, however — with earnings estimated to grow by 62.1% per year, compared to Kennametal’s 14.79%. Here, KMT is in the 91st percentile — HLMN is in the 96th.

Is there a clear winner on the whole? No — and I hope that you can glean enough info (or are at least spurred on to find it) from what you see here. But I’m not going to leave you without an opinion.

Personally, I’d go with Hillman Solutions. The stock has seen less of a rally in the past 365 days — and though it scores lower on Value, at a price-to-earnings growth (PEG) ratio of 0.84x, it’s hard to call the valuation unappealing. HLMN has notched 3 earnings beats in a row, compared to KMT’s 2 — and the company’s next earnings call is due February 17. And like we mentioned, it scores higher in terms of Growth.

Is it riskier? Yeah — but it’s a risk I’m personally willing to take. Kennametal seems like much more of a “priced for perfection” situation to me at this point in time.

I usually recommend a stock outright — but not this time. I think Hillman Solutions is a better fit for me right now. For your own portfolio, you should, as always, give both of the choices a closer look — and more conservative investors might well decide that KMT is the better pick.

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