U.S. industrial production is booming as demand for steel, consumer goods and energy-related products jumps. Indeed, one index of U.S. industrial production used by the Federal Reserve is near an all-time high. Meanwhile, I still expect Congress to eventually pass both an infrastructure bill and a huge budget that will include many positive catalysts for these companies. Given all of these points, it’s a very good time to identify some U.S. industrial stocks to buy.
Also making industrial stocks attractive is their recent pullback in the wake of Chinese real estate company Evergrande’s difficulties. Multiple experts are saying the event should not have a meaningful, negative impact on the global economy. Plus, China’s government looks ready to limit any damage to the country’s economy. As a result, I don’t expect Evergrande’s woes to hurt U.S. industrial companies.
Back in the U.S., the infrastructure bill is expected to lift a wide variety of industrial stocks. Additionally, the budget should provide a big boost to the makers of products that help reduce carbon emissions. These top industrial stocks to buy should benefit the most from the bills:
- Caterpillar (NYSE:CAT)
- General Electric (NYSE:GE)
- Plug Power (NASDAQ:PLUG)
- Arrival (NASDAQ:ARVL)
- Generac (NYSE:GNRC)
Industrial Stocks to Buy: Caterpillar (CAT)
Caterpillar is a top construction-equipment maker. Stephanie Link, the chief investment strategist of Hightower Advisors, is very bullish on CAT stock. She expects the company’s demand “to be off the charts,” and predicts its margins will stay solid.
With oil and natural gas prices high and heading higher, Caterpillar’s significant oil and gas business should lift its financial results.
Also likely to help CAT stock is the infrastructure bill, which should boost its construction business. Caterpillar is even starting to get into the hydrogen sector. That should improve the company’s performance over the long-term as the space matures.
CAT stock was down nearly 10% over the month that ended on Oct. 1. The dip could likely be attributed to worries surrounding Evergrande’s financial woes. As a result, the shares have a low forward price-to-earnings (P/E) ratio of 16x.
What’s more, the stock has a significant dividend yield of 2.3%.
General Electric (GE)
General Electric has a sizeable wind energy business that should benefit from Congressional Democrats’ budget proposal, which has multiple incentives for renewables.
Amid the electric vehicle (EV) surge, electricity shortages are popping up in Europe, China and California. As a result, many new power plants are likely to be built, lifting the company’s power and grid segments.
Meanwhile, GE’s aviation unit is benefiting from the easing of the pandemic. On the defense front, the division seems to be doing very well. It recently received a $131.6 million deal from the U.S. Navy and a defense logistics contract with the Department of Defense that could be worth nearly $284 million.
GE also used an acquisition to enter the surgical sector. As the company develops more products for the space, the deal could wind up moving the needle for GE stock.
Finally, the surge of natural gas and oil prices should lift Baker Hughes (NYSE:BKR), in which GE had a nearly 26% stake as of April. The company has been steadily selling its shares of Baker Hughes, but it likely still has a significant amount of the stock.
Industrial Stocks to Buy: Plug Power (PLUG)
Plug Power is rapidly becoming one of the world’s leading producers of hydrogen. This leaves it very well positioned for the not-too-distant future, when a high percentage of trucks are expected to utilize the fuel.
Plug Power recently announced it would launch a European headquarters in Germany. The move will increase its presence on the continent, which is embracing hydrogen fuel sources.
The company also intends to open the biggest hydrogen plant on America’s west coast. Additionally, its partnerships with SK Group and Engie (OTCMKTS:ENGIY) should help it penetrate the Korean and European markets, respectively.
After meeting with the company’s top executives, a Citigroup analyst believes the company can produce green hydrogen at the same price as hydrogen from natural gas. The analyst also thinks the infrastructure legislation can help Plug Power. The firm kept a $35 price target and a “buy” rating on the shares.
The company has not been majorly impacted by the chip shortage. In August, Seeking Alpha reported that “its trucks and vans will have competitive pricing and 50% lower cost of operations than those with internal combustion engines.”
Encouragingly, the city of Anaheim, California has agreed to spend $2 million on the company’s buses. The deal could potentially result in many more agreements between the company and other cities in the state.
Additionally, the company president, Avinash Rugoobur, recently suggested the company could obtain a sizeable number of orders in India. Arrival is launching a research and development facility in the country.
In the U.S., the infrastructure plan allocates $2.5 billion for electric school buses. Those funds could be used by school districts to buy Arrival’s buses.
Despite all those positive catalysts, the market capitalization of ARVL stock is less than $8 billion, versus $34 billion for Lucid Motors (NASDAQ:LCID).
Industrial Stocks to Buy: Generac (GNRC)
Generac develops backup electric generators. Like GE, it should benefit from increased demand for electricity amid the EV revolution.
As the transition to renewable power and increased prevalence of intense storms create uncertainty in the electric grid, GNRC stock has benefited. In fact, in the second quarter, its EPS soared 71% year-over-year (YOY) to $2.39 while its sales jumped 68% YOY, reaching $920 million.
Generac is also entering the rapidly-growing solar power sector. In July, it acquired a company that makes microinverters for solar energy systems. Since then, it has begun selling battery systems that can be used in conjunction with solar power. As more companies and consumers become aware of the latter solution, the demand for it should surge.
GNRC stock is down about 13% from its high, leaving the shares at a relatively low forward P/E ratio of 36x.
On the date of publication, Larry Ramer held long positions in GE,ARVL and PLUG. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.