When you think of industrials, it’s easy to think of the Dow Jones Industrial Average. But that index takes a very narrow view of this important sector.
None of the seven industrials with great fundamentals that we feature here — Northrup Grumman (NOC), National Presto (NPK), Southwest Airlines (LUV), Cintas (CTAS), AMERCO (UHAL), AO Smith (AOS) and Matson (MATX) — aren’t in the average.
And where the DJIA is basically breakeven for the year-to-date, these stocks average a 33% gain, with much more to come.
As the economy improves, these are the firms that will be on the leading edge of that rebound. They’re already doing well through difficult times; imagine how well they will perform when the economy is easier to navigate.
And all these companies are focused on the U.S. economy, so a strong dollar won’t have much effect on their earnings. And those that do have exposure abroad have used to leverage growth and diversify market risk. It’s icing on the cake.
Industrials to Buy: Northrup Grumman (NOC)
Northrup Grumman (NOC) is one of the nation’s leading defense contractors. And the biggest recent news for the company is that it won the next-generation bomber contract, beating out competitors Boeing (BA) and Lockheed Martin (LMT).
The long-term contract for the new Long Range Strike Bomber (LRS-B) is for 100 planes with a total value of $60 billion to 80 billion. Of course, BA is already protesting the decision, but if anything happens, it won’t hurt NOC. BA will try to get a secondary contract, citing national security issues for concentrating such a major project in one firm’s hands.
But NOC earned the contract, having built the B1 and B2 stealth bombers and establishing itself as one of the leaders in unmanned aerial vehicles (UAVs) for the armed services, particularly the Navy and Air Force.
Beyond this headline win, NOC is a key partner on the new F-35 fighter and has a number of crucial UAV contracts. The UAV sector is one of the key growth sectors in most of the armed services’ budgets going forward. NOC is the best play on new automated military.
Industrials to Buy: National Presto (NPK)
National Presto (NPK) is an interesting company. It has had the likes of value investors extraordinaire Warren Buffett and Benjamin Graham as investors. It’s a debt-free firm in a debt-laden world. And it combines three sectors that hardly seem like they would work as one company — household products, ammunition and absorbent products (adult incontinence products).
Yes, that’s quite a heady mix, but somehow NPK is making it work. It’s up 54% year-to-date even as naysayers have been trying to say why this bumblebee can’t fly.
It has had problems with its absorbent products division, and many say that management has focused too much money and energy trying to get that division to work while not using that time on energy for the two other growing sectors.
But the fact is, the household goods and ammunition divisions are doing very well without much time and energy. And the company pays a special dividend of around 7% that most analysts don’t talk about.
What’s more, high insider ownership of the stock means that management has its money where its mouth is. They don’t make money unless the company is making money. That’s always an encouraging sign.
Industrials to Buy: Southwest Airlines (LUV)
Southwest Airlines (LUV) is so successful, it’s hard to believe it’s actually an airline.
Its Q3 numbers released in late October were very impressive. Earnings continue to rise, and it expanded capacity without sacrificing profitabilty. As a matter of fact, monthly load factor rose, as did year-to-date load factor.
The number of trips flown and the length of the trips also increased. Given the low fuel prices, this helped boost revenue growth by almost 11%.
LUV is near its 52-week highs but its reasonably priced. And because it continues to be the most liked discount airline, it will continue to pull passengers, even when pricing becomes more of a challenge.
As the industry consolidates, LUV has found a very strong brand that it can succeed with for many years to come. It has battled through much tougher times than these and continues to operate from a position of strength inside its sector and in the industry in general.
Industrials to Buy: Cintas (CTAS)
Cintas (CTAS) continues to make mundane sectors fun for investors. Fundamentally, it supplies what it calls corporate identity uniform programs. It also provides logo mats, restroom supplies, as well as first aid, safety and fire protection products and services.
CTAS is kind of a corporate drycleaner and cleaning service all wrapped into one. You have certainly seen its trucks dispatched from one of its 400 distribution centers across the U.S. and Canada deliver uniforms to hospitals, hotels, restaurants and any number of other businesses around virtually every town in America.
It even runs a contest for America’s (and Canada’s) Best Bathroom where people vote on their favorite commercial bathrooms. The contest just ended and the 2015 winner will be announced soon.
But beyond all this, CTAS stock is rock-solid. And while it isn’t going to be a double-digit grower, Cintas is very dependable, quarter after quarter, year after year.
Industrials to Buy: Amerco (UHAL)
Amerco (UHAL) is another ubiquitous North American company that doesn’t really get much respect on Wall Street.
This year has been a big one for UHAL, up 43% year-to-date. But it isn’t necessarily that more people are using the rental trucks and storage units. They are, but the real story here is the other divisions that aren’t always as obvious as the trucks and storage buildings.
Amerco also operates a property & casualty insurance business and a life insurance company.
These businesses are important because insurance companies essentially hold big piles of cash in short-term investments like U.S. Treasuries. If claims are made, they can liquidate those positions easily and pay off the claims.
When interest rates rise, it means the insurance companies make more money off of the cash. And UHAL will certainly be hauling in a lot more cash when the Fed decides to hike rates.
Industrials to Buy: AO Smith (AOS)
AO Smith (AOS) makes water heaters.
Now that doesn’t sound like the kind of business where you want to put your growth capital to work, but it’s actually a very good long-term growth investment.
The water heater business is especially attractive when you are one of the top consumer and commercial water heater makers and you sell into growing home-owning economies like China and India.
This is one company on the list that is seeing significant growth beyond U.S. borders. In AOS’s most recent quarter, China sales rose 11%. U.S. sales rose 6%. And overall revenue was up 45% year-over-year.
Water heaters aren’t fancy, but they are important products. And whether you’re in a developing nation or a developed one, access to hot water is important. AOS is growing along with the global economy.
Industrials to Buy: Matson (MATX)
Matson (MATX) has been in the shipping business for 130 years. This Hawaii-based firm started shipping goods from the mainland U.S. to Hawaii, which was very good business and continues to be a solid revenue source.
Since then, it has grown a major international shipping and logistics firm. It recently expanded operations to Alaska, which has been very helpful in recent quarters.
When economies are strong, shipping is a great place to be. And when the holiday season arrives, it’s also a cyclically strong time for shippers, as goods begin to flow from Asian manufacturers to North American consumers.
Given the improving U.S. economy, this should be a strong season as well as bullish long-term trend. And given MATX’s long experience in the industry, it’s no surprise the company is coming off another strong quarter. And the stock is up 50% year-to-date with a 10% bump in just the past week because of its recent quarterly numbers.
MATX is taking off.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
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