A list of the best industrial stocks to buy is less interesting than a similar list of companies in fast-growing industries like technology or healthcare even in a bullish market.
In contrast to the perceived attractiveness of cybersecurity leaders and biotech startups, many investors view underperforming industrial stocks as boring and unworthy of their time and money.
About 8.5% of the S&P 500 index is made up of companies from the industrial sector. These assets constitute the backbone of any long-term investing strategy, but they are especially important for investors who want a diversified portfolio with lower volatility than a high-growth, risk-oriented portfolio.
Industrial stocks are those of large, well-known public companies that are vital to the functioning of the United States economy.
Because of their prominence in the Dow Jones Industrial Average (DJIA), a widely followed stock market index in the United States, industrial companies are often seen as embodying the values of the stock market.
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Nothing written here is financial advice.
We don’t advise holding individual stocks. ETFs and funds are a better option.
This article merely looks at some of the better options.
Table of Contents
Advantages of Investing in Industrial Stocks
The classic example of a cyclical stock is best demonstrated by the performance of industrial stocks. When the economy is growing at a healthy rate, the number of orders that are placed with manufacturing companies typically increases by a sizeable amount.
There is a widespread consensus that industrial stocks are among of the most venerable examples of publicly traded firms.
Numerous industrial stocks have demonstrated longevity by being in business for several decades.
As a result, they have established a detailed performance history, which enables investors to evaluate the robustness of these equities throughout a variety of economic climates.
In addition, because there are economies of scale, industrial stocks often display traits of being large and diversified businesses. These features can be attributed to their presence.
The distribution of dividends is a common practice among industrial stocks, and certain businesses have a track record of maintaining and even increasing their dividend payments over lengthy periods.
For example, it can be seen that over 18% of the dividend aristocrats are comprised of shares from the industrial sector. This is something that can be noted.
When considering the best industrial stocks, investors often turn to the top-performing industrial ETFs for diversified exposure to the sector.
Risks of Investing in Industrial Stocks
Despite their many advantages, industrial stocks are not without their drawbacks. Investment decisions should not be made without first thoroughly assessing and accepting several risks.
During economic downturns, industrial stocks typically underperform. This contrasts with the fact that it is a good investment choice when times are good economically.
As economic activity slows and enters a time of recession, the demand for industrial items decreases significantly, resulting in a decline in the value of industrial stocks.
Supply chain issues are a major problem for industrial stocks. Complex and extensive supply networks are crucial to the success of industrial firms’ goods and services.
Supply chains can potentially take physical form in transportation and logistics companies. COVID-19 has shown how vulnerable industrial companies are to supply chain interruptions.
The dividend yields of industrial stocks are notoriously volatile.
The majority of industrial dividends are highly correlated to the vicissitudes of the economy, much like the volatility of share prices, but a select few significant industrial businesses show strong and rising dividend payouts.
What are the Best Industrial Stocks to Buy
The Manitowoc Co. Inc.
Among the available choices, Manitowoc is the clear winner as the smallest and most specialized industrial stock.
Notably, it is the only company on the list that does not pay dividends to its shareholders at present and has not done so for the past decade.
The firm provides designed lifting solutions, such as hydraulic cranes used in the building industry, power generation, and manufacturing.
Compared to the other entities on the list, this one has a smaller market value of $600 million. But it has shown amazing success in its industry, and this year has been a phenomenal one for its stock price.
Over 90% of this year’s gain in stock price can be ascribed to expectations of a 50% increase in earnings for the fiscal year ending in 2023.
The construction industry is optimistic, and a recent higher revision to the small-cap industrial stock’s full-year outlook supports this.
ABB
ABB (ABB, $33.11) is a multinational corporation specializing in the design, manufacture, and sale of electrical and electronic components and systems for a wide variety of industries and uses.
ABB, like many of the highlighted industrial firms, is a “cyclical” corporation whose revenue and earnings are dependent on the health of the economy as a whole.
Its operations, however, lend it some credibility thanks to the diversity of its clientele, which includes both large and small entities across a wide range of industries and geographic locations. Together, they constitute robust aggregate demand.
ABB’s consistent performance has allowed it to slightly beat the rest of Wall Street in 2023. More importantly, ABB’s future is secure because of the widespread adoption of its cutting-edge technologies in emerging markets.
ABB stands out because of its near-term dependability and long-term growth.
Many companies listed as industrial stocks are safe bets but lack excitement. ABB, on the other hand, possesses vitality and relevance that are unusual for the industry and could lead to substantial returns.
High-net-worth individuals seek the expertise of private banking services to tailor their investment portfolios, including the best industrial stocks.
United Parcel Service
United Parcel Service (UPS, $189.40) is in for a tough year because of concerns that a slowing economy will lead to fewer shipments.
However, the stock is down “only” approximately 8% in the last 12 months, which is in line with the S&P 500 Index’s performance over the same period, therefore the company is not in any worse situation than any other in the near term.
However, its long-term potential is crucial. In the era of e-commerce, it is cheaply priced and still has robust long-term growth possibilities.
In addition, this year’s dividend rise of 10 cents above last year’s marks UPS’s 14th straight annual dividend increase.
This is in addition to a stock repurchase program worth $5 billion, which has shown the company’s dedication to its shareholders.
Companies like UPS, which specialize in shipping goods all over the world, are crucial logistics providers in the age of Amazon (AMZN).
There is little doubt that one of Wall Street’s strongest industrial stocks has staying potential, even though any near-term recession could cause difficulties.
Investment funds managed by experienced professionals often include a mix of the best industrial stocks to maximize returns for their clients.
Masco Corp.
When it comes to plumbing fixtures, no one does it better than Masco Corporation. They have everything from high-quality faucets and shower heads to tub enclosures and pool accessories.
Delta, Master Plumber, Endless Pools, and Fantasy Spas are just a few of the many well-known brands owned by the corporation.
Masco has had consistent demand as of late thanks to the healthy state of the property market.
The main reason for this is that homeowners have refinanced their mortgages to take advantage of cheaper interest rates as rates have gone up.
So they’re making renovations to their homes, a sign that they plan to stay put for the foreseeable future.
Automatic Data Processing
Many companies throughout the global economy use Automatic Data Processing (ADP, $213.17) as their human resources and payroll platform.
Even while this has some correlation with business formation and employment patterns, ADP can maintain reasonably stable performance due to the breadth and depth of its existing ties.
ADP is regarded as one of the most reliable dividend stocks on Wall Street. To celebrate its 48th year of yearly dividend hikes, the corporation 2022 announced a startling 20% boost to its quarterly payout.
Stock prices have indeed been under duress recently, but that fact cannot be denied. Not only that, but thanks in part to this news about its dividends, ADP stock hit a new all-time high in November despite recent upheaval.
Future revenue growth projections of around 9% for this fiscal year and 7% for fiscal 2024 are also indicative of a company that is doing better than simply surviving in a challenging market.
While hiring patterns in the short term will always rise and fall, ADP could be a good addition to your portfolio if you’re searching for a company in the industrial sector that will keep paying regularly over the long haul.
In uncertain economic times, investors may opt for the best defensive stocks within the industrial sector to safeguard their portfolios.
Union Pacific
Union Pacific (UNP, $194.21) is the largest railroad operator in the United States, operating a network of almost 32,000 miles across 23 states.
The company has been in existence for more than 150 years. Everything from packaged goods to bulk grain to chilled delicacies to oil tanks to autos and everything in between may be shipped using this method.
UNP, like other industrial stocks on this list, may be affected by cyclical headwinds due to a potential economic slowdown in the United States.
Reduced spending by companies and individuals means fewer goods need to be moved by train. There is no denying, however, that UNP has a business strategy that is deeply rooted and will endure.
Though the business has been relatively unmoving in recent years, a major inside push for change is underway.
In February, when CEO Lance Fritz announced his resignation, the initiative began in earnest, and as a result, the stock price increased by nearly 10% almost immediately.
The decision was made with a renewed emphasis on shareholder value and in response to pressure from activist investor group Soroban Capital Partners.
This logistics behemoth is undergoing significant change, and investors may have to be patient if they hope to reap the benefits of any major initiatives to enhance efficiency or generate returns.
Portfolios focused on stability and consistent performance often feature the best consumer staples stocks alongside top industrial stocks.
Caterpillar
Caterpillar (CAT, $213.53), like many other industrial corporations, is a cyclical business that relies on healthy economic growth to boost sales and profits.
Despite the not-so-rosy global economic expectation in 2023, CAT is, due to several variables, a very solid alternative right now.
With the end of China’s “zero-COVID” regulations, there is a lot of opportunity for pent-up demand to be released via spending on building, infrastructure, and more, and Asia-Pacific accounts for around 20% of Caterpillar’s revenues.
That might provide the Dow stock with a welcome boost in the near term.
The fact that Caterpillar has increased its dividend payment every year for nearly 30 years demonstrates the company’s dedication to its shareholders over the long term, making it one of the greatest dividend growth stocks.
More than that, CAT’s board of directors approved a new share repurchase authorization of $15 billion last year, which is equivalent to around 13% of the company’s market value.
Caterpillar is an industrial company worth considering despite its exposure to cyclicality because of its broad operation, strong linkages to Asia-Pacific, and generous history of returning capital to shareholders.
Investors looking for growth opportunities may explore the best consumer discretionary stocks as well as the top-performing industrial stocks.
Lockheed Martin
If you have ethical issues with funding the production of weapons, then Lockheed Martin (LMT, $489.99) is not the stock for you.
Lockheed and its famous “Skunk Works” created many of the jets and missile systems that came to symbolize American military strength throughout the Cold War era.
However, the current geopolitical climate makes it imperative to invest more in defense. So, it stands to reason that LMT would profit from this movement.
As an illustration, the United States intends to sell many High Mobility Artillery Rocket Systems (HIMARS) manufactured by Lockheed Martin to Ukraine.
The U.S. government must approve these contracts, but LMT will ultimately benefit from the billions of dollars invested in this missile system.
Assuming the idea of profiting off of the sale of military hardware doesn’t make you queasy, it’s also worth mentioning that LMT has been one of the few successful stocks on Wall Street recently.
The stock is up around 40% since the beginning of 2022, compared to a loss of 14% for the S&P 500 as a whole during that time.
New 52-week highs for Lockheed Martin show that the company’s upward trend shows no signs of abating.
Honeywell International
Honeywell International (HON, $189.43) is representative of the risk-reward trade-offs faced by modern industrial corporations.
Aerospace, construction, performance materials and technologies, and safety and productivity solutions are the company’s four main lines of operation.
Just under a third of its annual income comes from its aerospace division, which produces jet engines and flight controllers, among other things.
However, HON also makes a wide variety of other products, such as safety clothing, pharmaceutical packaging, and video surveillance systems.
One benefit of being a large, diversified corporation is that HON is not dependent on any one product or area of business.
The negative is that it’s more difficult for a single product to stand out, or for all these departments to work together to propel rapid expansion.
However, the odds appear to favour Honeywell due to positive developments in the commercial aircraft sector, such as the ongoing research and development of air taxis and delivery drones.
Potentially lucrative is its building technology division, which provides sustainability solutions for “greening” commercial and residential real estate.
A long-term perspective is required due to the complexity of the situation. Honeywell, on the other hand, is a solid investment if you want exposure to a diversified, well-established industrial conglomerate.
Raytheon Technologies
Raytheon Technologies (RTX, $98.76), a global leader in aerospace and defense, has built an excellent track record of growth in part through a policy of aggressive mergers and acquisitions.
That not only improves its products but also creates cost savings through synergy.
Big realignment plans in the wake of a recent reorganization of its operations are likely to be unveiled at an investor presentation timed to coincide with the Paris Air Show in June.
After a megamerger in 2020, which combined the resources of Raytheon and commercial aerospace behemoth United Technologies, the resulting entity, RTX, became a dominant force in the industry. After the dust has settled, Raytheon’s new version will be guided by a comprehensive strategic plan.
Investors should be encouraged by the company’s plans for roughly 10% organic revenue growth this year and next, as well as by the possible cost savings.
There is a good chance of success if the above-average dividend and the $6 billion stock buyback plan authorized at the end of 2022 are implemented.
Illinois Tool Works
Illinois Tool Works (ITW, $229.41), a global leader in industrial machinery, is a classic case of a slow-and-steady dividend stock in the industrial sector.
ITW is an extremely versatile firm that produces anything from automobile components to food service tools to welding equipment to high-tech testing and measurement systems.
This diverse set of inputs reduces the impact of any one factor on the outcome.
Illinois Tool Works also has an admirable dedication to its stockholders. The Dividend King has maintained a dividend payment schedule since 1933 and has raised its payout for the past 59 years in a row.
While the headline yield may not be particularly high, it is virtually guaranteed that these distributions will increase in the years to come.
ITW had a very successful fiscal year end in 2022, with revenue and earnings per share both increasing by 16% year over year in the company’s most recent quarterly report.
That kind of success is remarkable for any stock, in any economic climate. It’s impressive enough that a stalwart industrial corporation like this one managed to tally up those figures.
ITW’s prospects will undoubtedly be influenced by global economic trends. However, this stock’s good track record gives long-term investors confidence that it will deliver.
Final Thoughts
Investing in industrial stocks can be done in a tax-free 401(k) or a regular brokerage account. To help you choose the best account type for your needs, we have compiled a list of the best online brokers and investment apps.
Compared to buying shares of a mutual fund or an index fund, investing in individual stocks is a unique process.
Researching particular companies and assessing the risks involved is essential before making any stock purchases.
Because individual stocks are more volatile than diversified funds, prospective buyers must be aware of and prepared for all of the associated dangers before making any investment.
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