Ampco-Pittsburgh: Navigating Turbulence to Unlock Value in a Reshoring Era

Ampco-Pittsburgh Corporation (NYSE: AP) has faced a challenging 2025, marked by operational headwinds and strategic restructuring. However, beneath the surface of its recent underperformance lies a compelling narrative of transformation, sector-wide tailwinds, and undervaluation opportunities. For investors with a long-term horizon, the company's strategic moves and the broader industrial materials sector's reshoring momentum present a unique entry point.

The Catalysts: Strategic Restructuring and Sector-Wide Tailwinds

Ampco-Pittsburgh's Q2 2025 results revealed a net loss of $7.3 million, driven by $6.8 million in costs from exiting its U.K. cast roll operations. While painful in the short term, this move is a calculated step to eliminate underperforming assets and unlock annual operating income improvements of at least $5 million. The CEO, Brett McBrayer, emphasized that the U.K. exit aligns with the company's focus on high-margin markets and operational efficiency.

The Forged and Cast Engineered Products (FCEP) segment, which accounts for a significant portion of revenue, has been hit by U.S. tariff uncertainties. These policies have disrupted global supply chains, leading to a 9% decline in FCEP backlog from Q1 to Q2 2025. However, the Air and Liquid Processing (ALP) segment has shown resilience, with improved profitability and record order intake in the nuclear market. Ampco's first small modular reactor (SMR) order and a $4 million Navy-funded modernization project at its Buffalo facility underscore its strategic pivot toward high-growth sectors.

The industrial materials sector itself is undergoing a seismic shift. The Trump administration's 2025 tariffs—25% on steel, 50% on aluminum, and 104% on Chinese goods—have accelerated reshoring trends. While these policies caused a 0.7% GDP contraction in the U.S., they have created a favorable environment for domestic manufacturers. Companies like Cleveland-Cliffs (CLF) and Caterpillar (CAT) are benefiting from this shift, with CLF trading at a P/S ratio of 0.30 and CAT at a 15% discount to its 5-year average P/E. Ampco-Pittsburgh, with its focus on niche industrial markets, is well-positioned to capitalize on similar dynamics.

Undervaluation: A Deep-Value Opportunity

Ampco-Pittsburgh's stock currently trades at a 15.9 P/E ratio, significantly below the industry median of 21.4. This discount reflects the market's skepticism about near-term challenges but overlooks the company's long-term potential. The AAII Value Grade of “A” (Deep Value) highlights its attractive valuation relative to fundamentals.

The company's adjusted EBITDA of $8.0 million in Q2 2025, despite headwinds, demonstrates operational resilience. The ALP segment's strong performance—driven by defense and nuclear markets—offsets weaker FCEP results. With the U.K. exit expected to yield $5 million in annual savings, Ampco's path to profitability is clear.

Moreover, the company's strategic investments in additive manufacturing (e.g., a Navy collaboration at Oak Ridge National Laboratory) and high-efficiency forging equipment position it to reduce costs and enhance product quality. These initiatives align with broader industry trends toward automation and advanced materials.

Risks and Mitigants

Investors must weigh the risks of tariff-driven volatility and inflationary pressures (core PCE at 2.8% in May 2025). However, Ampco's disciplined approach to cost management, its focus on high-margin markets, and the anticipated resolution of trade policy uncertainties (e.g., the EU trade deal) provide a buffer. The company's $368.5 million backlog as of March 31, 2025, also signals strong future demand.

Investment Thesis: A Buy for the Patient

Ampco-Pittsburgh's stock offers a compelling risk-reward profile for investors who can tolerate short-term volatility. The company's strategic restructuring, sector tailwinds, and undervaluation metrics suggest a path to earnings recovery in 2026. Key catalysts include:
1. U.K. Exit Completion: Annual savings of $5 million post-exit.
2. Reshoring Momentum: Increased demand for domestic steel and industrial components.
3. Nuclear and Defense Growth: SMR orders and Navy contracts.

While the road ahead is not without challenges, Ampco-Pittsburgh's proactive management and alignment with long-term industrial trends make it a standout in a sector poised for growth. For those willing to look beyond the noise, this is a deep-value opportunity with significant upside.