We are currently in the expansion stage of our business cycle, which means that we have more capacity with many opportunities to grow. Thus, it is an excellent time for industrial companies and their underlying stocks to thrive. The opportunities for infrastructure spending and green energy investments are powerful forces in the manufacturing industry.
Increasing global output and higher capital expenditures are expected to help a wide range of industrial firms achieve revenue growth in the coming years, particularly because of the global economic recovery. Additionally, governments are looking to jumpstart their economies through tremendous infrastructure spending worldwide. America stands head and shoulders above all the others in this space.
President Joe Biden has signed the $1 trillion infrastructure bill into law, giving him and others their largest victory to date in pushing for domestic spending. The new legislation will funnel billions toward state-level improvements and upgrades for roads, bridges, and transit systems. It will help Americans in their everyday lives and will also increase jobs. Construction is the heart of our economy. It pumps life into everything from buildings and roads to bridges and power lines, all industries depend on it for their success. Hence, the emphasis on this sector makes sense.
Read on for my take on seven industrial stocks that will continue to benefit from this trend, namely:
- Caterpillar (NYSE:CAT)
- Deere & Company (NYSE:DE)
- Johnson Controls International (NYSE:JCI)
- Emerson Electric (NYSE:EMR)
- Waste Management (NYSE:WM)
- FedEx (NYSE:FDX)
- Nielsen Holdings (NYSE:NLSN)
Industrial Stocks to Buy: Caterpillar (CAT)
Industrial giant Caterpillar is a leading construction and mining equipment manufacturer, diesel engines for heavy-duty trucks and natural gas turbines. With a more than 15% market share in 2020 and strong respect from customers all around the globe — it is no wonder why they are also one of America’s most successful companies.
As a bellwether for the economy, infrastructure companies rely on construction to keep going. The pickup in industrial activity is expected to fuel revenue growth for CAT. Consequently, management expects revenues and earnings to continue growing at a healthy pace.
It will benefit from increased demand for its construction equipment, a major component of CAT’s business. The government spending on infrastructure and building activity in China and America are huge tailwinds. Since assuming office, President Biden has been very aggressive in building up infrastructure, highlighted by his trillion-dollar infrastructure project.
The industrial giant reported strong third-quarter earnings as demand for construction equipment increased and commodity prices continued their rebound. Caterpillar’s profits reached a whopping $2.66 per share for the three months ending in September, up nearly 100% from last year and well above analyst expectations of only $2.20. group revenues rose 25% to $12.4 billion. By the end of the quarter, Caterpillar had $19.4 billion in cash, compared to $10.8 billion sequentially.
“Our third-quarter results reflect higher sales and revenues across our three primary segments and in all regions,” said CEO Jim Umpleby. As we head into the new year, Caterpillar is in a prime position to succeed and thrive. According to data from Refinitiv, analyst estimates call for 35.7% revenue growth for fiscal 2022, according to the 17 CAT stock analysts surveyed.
Deere & Company (DE)
Deere & Company manufactures various products, including agricultural machinery, heavy equipment for the construction and farming, and forestry machines. It also produces diesel engines used in various applications like tractors or trucks.
DE stock is always a favorite among industrial stocks considering its diversified business model. It has leading market shares across multiple large farm categories such as tractors or harvesters that help support farmers all over the globe. Manufacturers see increased production rising in conjunction with the demand for construction equipment and tractors.
The benefits of a strong dollar and higher crop prices are helping to drive Deere’s revenue growth. The firm also sees an incentive in its product replacement bid, which makes it easier for farmers who need new equipment as they switch over from older models that may not withstand today’s agricultural demands.
Net income for the year ended Oct. 30, 2021 rose to $5.963 billion, more than double the $2.751 billion from the year earlier. There has been an impressive improvement just over one single year.
“Looking ahead, we expect demand for farm and construction equipment to continue benefiting from positive fundamentals, including favorable crop prices, economic growth, and increased investment in infrastructure,” chairman and CEO John C. May said, commenting on the results.
“We anticipate supply-chain pressures will continue to pose challenges in our industries. We are working closely with our suppliers to address these issues and ensure that our customers can deliver essential food and infrastructure more profitably and sustainably,” he added.
Net income for 2022 is projected to be in a range of $6.5 billion to $7.0 billion — a very healthy guidance range.
Industrial Stocks to Buy: Johnson Controls International (JCI)
Johnson Controls International offers a wide range of HVAC products to keep your facility running smoothly. A major player in the industry, JCI controls provides installation and service for heating, ventilation, air conditioning systems, and industrial refrigeration units like those used at meat processing plants or breweries, among other places where they are needed. They also offer fire protection solutions. JCI’s work includes providing intelligent buildings that are efficient and integrated with other technologies.
As JCI scales up its OpenBlue platform, it should see an acceleration in long-term growth over time. They are expected to continue following through with plans for 150 new product launches throughout fiscal 2021 which will boost their product pipeline even further and lead them into a brighter future as momentum around residential construction continues alongside secular gains within smart buildings/cities marketplaces where Johnson holds an advantage due to their expertise related these technologies; analysts project this trend to continue moving forward.
JCI reported an adjusted earnings per share of 88 cents, up 16% yearly and sales jumped by 7% in the fourth quarter. This growth can be attributed to their effective marketing efforts and the success of new products in distribution. Adjusted net income from continuing operations increased 12% in the past year to $628 million. Apart from these solid numbers, the multinational conglomerate issued upbeat first quarter and full-year fiscal 2022 guidance.
For the first quarter, JCI is forecasting mid-single-digit growth in organic revenue for this year. Adjusted EBITA margin is expected to expand by 40-50 basis points. Meanwhile, the adjusted EPS before special items guidance range of 52 cents to 54 cents signifies 21%-26% growth year-over-year.
JCI is forecasting mid-to-high single-digit revenue growth for the full year. The consensus of seven analysts following JCI stock is for 8.9%.
Emerson Electric (EMR)
Emerson Electric, maker of power tools and other industrial equipment for use in manufacturing plants, is not having an excellent time as of late. A global enterprise, the company has operations in two major industries: automation solutions and commercial/residential solutions. The automation solutions sector is a leader in providing process management systems that automate everything from valves and pumps to intricate pieces of machinery.
The company’s commercial and residential solutions segment focuses on climate technologies, such as HVAC products. Some of their home innovations include InSinkErator garbage disposals for a cleaner kitchen environment or programmable thermostats to ensure that you’re always maintaining the right temperature in your house.
Industrial companies generally had a great second half of 2021. However, Emerson Electric stumbled a bit in its fiscal fourth quarter. The U.S. technology and engineering company reported a 7% drop in net income from the year-ago period. But they are expecting strong underlying demand for 2022. It posted record earnings of $670 million, a steep drop from last year’s figure of $723.5 million. EPS for the year rose 18% to $3.82, with adjusted EPS up 19% – exceeding guidance by quite a bit. Full-year net sales jumped 9% at $18.2 billion.
“We don’t expect the global supply-chain landscape to hinder our success around long-term value creation, and we continue to progress toward our cost reset targets,” CEO Lal Karsanbhai said. These words will instill confidence in Emerson Electric investors.
Overall, EMR stock is a solid performer that has done well over the last five years. Hence, there is no reason why Emerson Electric is not one of the top industrial stocks out there.
Industrial Stocks to Buy: Waste Management (WM)
Waste Management is one of North America’s leading providers of collection and disposal services. They also have a track record for developing landfill gas-to-energy facilities that help reduce greenhouse gases in our environment while helping provide clean electricity locally.
Waste Management’s business is more recession-resistant than other industrial companies because it provides residential, commercial, and municipal services. The company saw an increase in revenue and earnings as the Covid-19 crisis subsided. Due to a continuous focus on reducing costs, Waste Management could blunt economic impacts and emerge more profitable than ever before.
WM has invested in an automated fleet of collection trucks, which are now running on natural gas. These investments will help the company reduce its costs and environmental footprint while also contributing to cleaner air for everyone.
It has used its free cash flow to make acquisitions and maintain an investment-grade balance sheet. They paid $4.6 billion for the waste disposal, collection recycling services company Advanced Disposal in 2020 while returning money to shareholders through dividends or repurchases of their shares- all this shows how committed they are towards growing profitable businesses even if it means making some investments upfront.
WM always exhibited slow but steady growth patterns. But 2021 is on track to be a historic year. In its most recent Q3 earnings report, Waste Management reported $4.7 billion in revenue — a 20% increase from last year’s third quarter. The results show that operating and net income are growing at a double-digit rate. Its ability to generate cash from operations is also improving recently, jumping to $1.3 billion for the nine months ending on Sept. 30 compared with $1.01 billion a year ago.
The 16 analysts following WM stock have an average earnings estimate of $1.26 per share for the December 2021 quarter and $4.86 per share for the year.
E-commerce has been a major driving force behind the increased demand for FedEx services. It offers many other logistics-related products such as express mailings or international freight forwarding for those looking into making global shipments easier than ever before. FedEx delivered over 6.6 million packages daily to its customers in the last fiscal year.
This trend is only expected to continue as consumers further embrace online shopping. FedEx’s cash flow should remain high with the company in a good position to continue generating lots of it. The company has a competitive and consistently growth dividend. With its balance sheet strengthened by investing in new facilities or equipment for faster delivery times, the business can settle debt with increased profits from these projects as well.
With its strong cash flow, FedEx has the opportunity to invest in innovation. The shipping company is making a conscious effort to become more sustainable, which will ultimately help the business achieve its goal of being carbon neutral by 2040. FedEx is also working hard on autonomous vehicles and self-driving technology.
FDX stock is trading at a steep discount, meaning it is just the right time to acquire more. Zacks Research sees the shares as approaching value status, suggesting that FedEx stock could be “an interesting play” based on its forward PE of 12.2x, its price-to-sales ratio of 0.8, and its dividend yield of 1.2%.
Industrial Stocks to Buy: Nielsen Holdings (NLSN)
Nielsen Holdings provides data and analytics for the media industry. It offers services such as audience measurement, which publishers use in marketing their products or brands to consumers through ads on TV programs they watch each week.
Nielsen also tracks how much time these viewers spend with certain commercials versus others during programming breaks – giving companies valuable information about who’s getting attention from potential customers.
Nielsen wants to enhance its national television measurement system by measuring viewing more precisely. It is an exciting development. Marketers looking to get accurate data on their ads’ effectiveness now have that information at their fingertips. Additionally, it gives networks even greater insight into which programming decisions can improve ratings among audiences they serve.
It is a huge step for advertisers who want to get the most bang for their buck. No more guessing how well an ad will perform or its ROI. Now, we can clearly see. It will help companies from all walks of life, and industrial companies are no exception.
As the entertainment industry increasingly shifts to streaming, Nielsen has struggled for relevance. The new initiative will help NLSN stock get its mojo back and help you play industrial stocks in a curveball way.
On the publication date, 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. You can check out his analysis on InvestorPlace and TipRanks.