One of the biggest parts about President-elect Donald Trump’s promise to “Make America Great” is to return manufacturing to the United States’ shores. That has the potential to be a real boon for America’s industrial stocks. Through his various campaign promises, Trump ultimately has painted a picture of lower taxes and incentives as well as proposed punishments for various manufacturers when it comes to creating jobs in the U.S. vs. abroad.
The sheer potential of lower taxes has industrial stocks riding high. Since November, the industrial stock sector proxy — The Industrial Select Sector SPDR Fund (NYSEARCA:XLI) is up 9%.
But the thing to remember is not all industrial stocks are going to be big winners under President Trump. Some are better positioned than others to take full advantage of the President-elect’s tax-cuts, incentives and spending plans. These industrials and manufacturers are the ones that investors should really be focusing their attention on.
With that in mind, here are three industrial stocks that will actually win under Donald Trump.
Industrial Stocks to Buy Under Donald Trump: Pentair plc. Ordinary Share (PNR)
Infrastructure remains a popular sticking point for President-elect Trump. So naturally, the various industrial stocks that focus on building out or supplying goods for those policies remain a great place for investment.
For Pentair plc. Ordinary Share (NYSE:PNR), the firm will be a big winner regardless of Trump’s blessing.
PNR manufacturers plenty of products designed for the use across the worlds of energy, agricultural and industrial applications. But its main bailiwick is water. That includes filtration, flood and waste water systems, pumps, valves, controls etc. All the stuff needed to build-out an upgraded water system. Trump has already promised to beef up spending in this area, along with bridges, roads, etc.
But congress has also acted as well. In the wake of the issues in Flint, Michigan, Congress approved a new $10 billion bill designed to improve the nation’s aging water system. Given Pentair’s main focus on clean water systems, the firm will be a huge beneficiary for the increased spending, even before Trump announces any official infrastructure plans.
For investors, buying PNR stock basically gives them a guarantee on the future spending, rather than just a “potential” maybe. And while they wait for those dollars to start rolling in, investors can be treated to PNR’s growing 2.44% dividend yield.
Industrial Stocks to Buy Under Donald Trump: Rockwell Automation (ROK)
While many people — including plenty of his supporters — feel that Trump’s support of manufacturing will result in more jobs for blue collar workers, the reality is that technology and automation is still replacing many of these jobs.
Don’t people believe me? Just ask United Technologies Corporation (NYSE:UTX) CEO Greg Hayes, whose company received a tax break from Trump to keep jobs in America. And UTX is only one of many industrial stocks that’s spending big on automation.
All of this is great for Rockwell Automation (NYSE:ROK).
Rockwell builds and designs all sorts of robots, process control equipment and other products needed to run the factories of the future — i.e., the ones that use less and less labor in favor of automation and technology. And sales for ROK have been swift over the last few years. The firm has recorded swift sales over the last years. That sales growth continues to generate ample free cash flows and earnings for ROK.
What’s even better is that Rockwell has invested some major bucks into the industrial internet of things and software to help other firm’s create the real factories of the future. In the end, this will be huge long-term growth driver for ROK stock.
If UTX is the precedent, then ROK will benefit in spades as other firms spend their “tax breaks” on automation.
Industrial Stocks to Buy Under Donald Trump: 3M Co (MMM)
When it comes to industrial stocks, 3M Co (NYSE: MMM) is as blue chip as they come. The diversified manufacturer features thousands of products covering a wide range of industries. That includes everything from Post-it notes to heavy-dusty diamond-coated sanding discs used in mining operations.
If Trump is able to get the U.S. economy humming along, then MMM is going to benefit. But 3M might benefit from Trump another way. Namely, on the tax front.
One of Trump’s main plans is to reduce corporate taxes and even provide a tax holiday for all that cash held overseas. That could be a big win for MMM and its investors.
During the third quarter, just under 60% of its $7.7 billion in revenues came from outside the United States. Both Europe and China were the largest two contributors. By reducing its overall tax rate, 3M could see double-digit upside to its earnings-per-share according analysts at Bernstein.
At the same time, the firm — like most U.S.-based companies with operations in Europe — should be able to bring much of its hefty cash pile home with little or no tax effect. That will result in bigger dividends and share buybacks.
In the end, MMM was already one of the best industrial stocks to buy. But with Trump’s tax plans, it’ll really be a winner over the next few years.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.