Industrial stocks got hammered last year due to the spread of the novel coronavirus. However, with vaccines rolling out, prospects are bright for the sector.
Part of that has to do with pent-up demand. Construction activity came to a screeching halt last year. But it is back in full force if the housing market is any indication. Once the dust settles, there will also be many mergers and acquisitions (M&A), which will also fuel the sector past pre-pandemic highs.
There is one thing that is important to note, though. These corporations are firmly tied to the economy. And their business volume often falls sharply during recessions. So, even though the pandemic is firmly in our rearview mirror, these stocks can still take a battering in case of a market crash.
With this point out of the way, let’s take a deep dive into seven companies that manufacture tools, equipment and supplies used in construction and manufacturing, along with those providing related services.
- The Middleby Corp. (NASDAQ:MIDD)
- Amerco Inc. (NASDAQ:UHAL)
- BrightView Holdings (NYSE:BV)
- Teradyne (NASDAQ:TER)
- United Rentals (NYSE:URI)
- Generac Holdings (NYSE:GNRC)
- Industrial Select Sector SPDR ETF (NYSEARCA:XLI)
Industrial Stocks to Buy: The Middleby Corp. (MIDD)
Middleby manufactures and services equipment for cooking and food preparation in restaurants and commercial and institutional kitchens. It makes ovens, microwaves, processing solutions, freezers and other culinary applications. Furthermore, it derives most of its revenue from the U.S. and Canada.
Earnings per share (EPS) and sales have fallen 41.4% and 14.8%, respectively, in the last year. Many restaurants, especially the smaller ones, suffered massively last year due to outdoor dining taking a hit. As revenues dried up, eateries could do little but push back on their equipment purchases. However, now that a vast majority of the U.S. population is vaccinated, greener pastures are around the corner.
Analyst data tracked by Refinitiv certainly points inthat direction. According to consensus estimates, revenues are expected to increase by 24.2% and 32.1% in 2021 and 2022. I do not find this surprising. After all, this company has beaten analyst expectations each time in the last six quarters, despite very tough operating conditions.
As we start to return to our favorite haunt for a nice quiet meal with friends, it’s best to keep MIDD in mind.
Amerco Inc. (UHAL)
Amerco has a finger in every pie in the industrial space, making it one of the best stocks to buy if you are looking for a diversified company.
Under its U-Haul brand, the company offers rental of trucks, trailers and storage space and sells do-it-yourself household products. The company also offers self-storage solutions and insurance products through several subsidiaries, giving you an idea regarding the diversified nature of its operations.
It’s hard to use any other word to describe Amerco’s fundamentals other than excellent. In the third quarter of fiscal 2020, ended December 31, 2020, net earnings came in at $183 million, or $9.33 per share, compared to net earnings of $30.9 million, or $1.58 per share, in the year-ago period.
For the nine-month period ended December 31, 2020, net earnings jumped to $537.1 million, or $27.39 per share, compared to net earnings of $319.7 million, or $16.31 per share, last year. In addition, self-moving equipment rental revenues, self-storage revenues and sales of self-moving and self-storage products and services all reported double-digit year-over-year growth.
Overall, the company has done very well for itself. The strong momentum should continue as the economy gets back on track.
Industrial Stocks to Buy: BrightView Holdings (BV)
BrightView Holdings does not feature on most lists of industrial stocks because it provides commercial landscape services for client properties, a far cry from the activities of most manufacturing giants. However, that should not stop you from investing in this one, especially considering its wide variety of clients from the education, healthcare, sports and leisure sectors.
Last year was rough for BrightView, with revenue falling 2.4%. That was partially because of reduced demand for its ancillary landscape services and low snowfall compared with historical averages. That did not stop the company from shelving its M&A pipeline, though. Instead, it made two key purchases last year.
On Sept. 24, 2020, BrightView announced the acquisition of All Commercial Landscape Services, a Fresno, California-based landscaping firm “specializing in landscape maintenance, irrigation, enhancement, arbor care and water management.” The deal will help the company enter the Fresno, California market.
The next month, BrightView snapped up WLE LLC, an Austin-based commercial landscape maintenance and development company, serving developer, commercial, homeowner’s association (HOA) and municipal clients across three markets in Central Texas.
Both these acquisitions should tell you that the company is looking to shrug off the effects of the pandemic. It certainly was one of the companies that paid the price during that time. But it is now looking in prime position for a comeback.
At the virtual CEO Summit on Semiconductor and Supply Chain Resilience last month, President Joe Biden said the U.S. needed to focus on investing in its chip “infrastructure” to address an ongoing shortage of semiconductors affecting several industries. As a result of this renewed focus, semiconductor stocks are now firmly in the spotlight.
Teradyne does not directly manufacture semiconductors. However, it tests approximately 50% of all them worldwide. Out of total revenues of $759 million for the fourth quarter of 2020, $524 million was due to semiconductor testing. In the last 12 quarters, the North Reading, Massachusetts-based company beat Wall Street analysts’ consensus earnings estimates every time.
So, you basically have a company that has performed exceedingly well for quite some time now. And it has significant tailwinds backing its performance.
Industrial Stocks to Buy: United Rentals (URI)
United Rentals is an equipment-rental company with operations in the U.S. and Canada. It provides rentals to businesses in the construction industry, manufacturing and commercial firms and provides services to homeowners and other individuals.
Much like BrightView Holdings, the company has had many M&A deals recently, piquing the interest of investors. In April, the company agreed to purchase General Finance (NASDAQ:GFN), a mobile storage and modular office space provider, in a $1 billion deal. The transaction is expected to be accretive to EPS and free cash flow upon close in the second quarter.
Separately, United Rentals is also purchasing Franklin Equipment LLC, a regional provider of equipment rentals.
Overall, the company is another solid performer that suffered badly due to Covid-19. As a result, the bottom line and the top line did lose steam in 2020. However, now with construction activity back in full flow, expect this stock to continue doing well.
Generac Holdings (GNRC)
Generac Holdings is a North American producer of power-generation equipment, energy storage systems and power products for the residential, light commercial and industrial markets.
One of the main reasons to invest in this company is its propensity to stay ahead of trends. In 2019, Generac was known for its standby generators. However, the company pivoted into providing energy storage systems as clean energy solutions for residential usage. It helped set it apart from several companies in the space. But that is not all.
A sharp focus on future trends such as energy market disruption, 5G deployment and manufacturing automation, all of which will be significant major drivers, make the stock a must-have for any portfolio.
Industrial Stocks to Buy: Industrial Select Sector SPDR ETF (XLI)
We finish this list with the safest way to invest in industrial stocks. If you are still on the fence when it comes to parking your capital in this space, XLI is your best bet to gain exposure to the market while taking advantage of the superior tax efficiency, lower risk and greater trading flexibility they offer compared to actively managed funds.
The XLI Industrial Select Sector SPDR fund is one of several exchange-traded funds (ETFs) available to investors seeking exposure to the U.S. industrials sector. You will find several transportation firms, commercial and professional services providers, and capital goods manufacturers in the portfolio. You have a nice diversified mix here, with General Electric (NYSE:GE), FedEx (NYSE:FDX) and Boeing (NYSE:BA) being among its top 15 holdings.
Bottom line: XLI is great for investors seeking a quick entry into the industrials sector. It is up 59.25% in the past year and shows no sign of slowing down considering the industrial boom.
On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio. Faizan does not directly own the securities mentioned above.