The Case for Buying Industrial Sector Bargains Amid Rising Inflation and Tariff Uncertainty

The industrial sector has long been a barometer for macroeconomic health, and today, it faces a perfect storm of rising inflation, shifting trade policies, and global supply chain disruptions. Yet, for value investors, these headwinds may present an opportunity to acquire undervalued cyclical stocks at compelling prices. Two names that stand out in this environment are Commercial Vehicle Group (CVG) and Vicor Corporation (VICR). Both companies have been battered by macroeconomic pressures but show signs of stabilization and long-term potential.

The Case for Cyclical Value Investing

Cyclical stocks—those tied to economic activity—tend to underperform during downturns but often rebound sharply when conditions improve. The current climate, marked by inflation-driven cost pressures and tariff uncertainty, has caused investors to flee industrial equities, creating mispricings. Value investing thrives in such scenarios, as it focuses on identifying companies trading below intrinsic value, often due to temporary setbacks rather than fundamental flaws.

Commercial Vehicle Group: A Debt-Reduction Play

CVG, a manufacturer of electrical systems and components for commercial vehicles, has faced a brutal 2025. Its Q2 2025 results showed a 11.2% revenue decline and a net loss of $4.1 million, driven by soft demand in construction, agriculture, and Class 8 truck markets. However, the company's ability to generate $17.3 million in free cash flow—a 1,962% increase from Q2 2024—highlights its operational resilience.

CVG's balance sheet is a key strength. With a debt-to-equity ratio of 0.42 and a current ratio of 2.12, the company has sufficient liquidity to navigate near-term challenges. Management has prioritized debt reduction, cutting net debt by $31.8 million year-over-year, and now targets a net leverage ratio of 2x by 2026. This focus on deleveraging, combined with margin expansion in its Global Electrical Systems segment, positions CVG as a potential turnaround story.

The stock currently trades at a price-to-book ratio of 0.42, suggesting significant undervaluation. While the path to profitability is uncertain, CVG's strategic pivot toward EV and autonomous vehicle markets—segments expected to grow rapidly—adds a layer of long-term optimism.

Vicor Corporation: A High-Growth Bargain?

Vicor, a designer of modular power components, offers a different profile. Despite a projected 9.8% annual earnings decline over the next three years, the company's 9.5% revenue growth and debt-free balance sheet make it an intriguing value play. Its Q4 2024 results, which beat estimates on both revenue and EPS, underscore its ability to execute in a challenging environment.

The stock's volatility—trading between a 52-week low of $34.27 and a high of $65.70—reflects mixed sentiment. Analysts have trimmed price targets after recent overvaluation concerns, but a $54.00 average target still implies a 9.14% upside from current levels. Vicor's P/E ratio of 32.4x, below its industry average, suggests it's trading at a discount to peers despite its strong revenue growth.

A key risk is its reliance on one-time gains, such as the $45 million patent settlement in Q2 2025. However, its expansion into aerospace and defense—markets less sensitive to economic cycles—could provide a more stable revenue base. For value investors, Vicor's combination of growth and undervaluation, despite near-term earnings risks, is compelling.

Navigating the Risks

Both stocks carry risks. CVG's exposure to cyclical sectors like construction and agriculture means its recovery hinges on macroeconomic stabilization. Vicor's earnings projections are bleak, and its high beta (1.74) amplifies volatility. However, value investing thrives on margin of safety: buying at a discount to intrinsic value and holding through short-term noise.

The Bottom Line

For long-term investors, CVG and Vicor represent two sides of the same coin. CVG is a debt-reduction play with a focus on operational efficiency, while Vicor is a high-growth company trading at a discount to its potential. Both are being unfairly punished by macroeconomic headwinds, not structural weaknesses.

In a world of rising inflation and tariff uncertainty, patience and a contrarian mindset are rewarded. These industrial bargains may not be glamorous, but for those willing to look beyond the headlines, they offer a path to outsized returns when the cycle turns.