Top 3 Best Industrial Stocks to Buy Now? (2019 Review)
This article examines the best industrial stocks in the stock market.
Industrial stocks deserve a place in every long-term portfolio. That’s because industrial stocks are the motor that drives the economy in many ways.
I have often thought of the best industrial stocks as being the companies that blue-collar Americans work for, the people manufacture all of the “stuff” that we use on a daily basis. Essentially, nothing in this country, or anywhere in the world, moves unless it is been produced by an industrial company.
There’s a reason we all learn about the Industrial Revolution when we are in school. It was the period in American history when innovation and machinery started to make manufacturing more efficient, and created wealth and prosperity.
Even the top industrial stocks, however, are subject to economic cycles. So while there will be the occasional downturn in the industrial sector, over the long term, industrial stocks will do well because America always remains competitive.
The Best Industrial Stocks For 2019
If you’re in a hurry, below are our picks for the most valuable industrial stocks as of this writing.
- The Boeing Company: Part of an oligopoly that manufactures essential items.
- CSX Corporation: The leading hauler of goods via railroad.
- United Technologies: A highly diversified conglomerate with unbeatable financials.
Keep reading and you’ll learn more about each of these winning industrial stocks and my thoughts on each.
What Are Industrial Stocks?
Industrial stocks involve companies that include construction, industrial machinery, waste management, tools, manufactured housing, aerospace and defense, lumber and cement production, and metals.
What makes a company one of the top industrial stocks depends on demand and supply for that particular industrial element that the company produces. Thus, the more diversified a company is, the better.
Industrial stocks are thus susceptible to economic changes. A weak economy means consumers spend less, so there is less demand, and fewer goods get produced.
Read Also: What’re the best dividend stocks?
How Do You Determine What Qualifies As The Best Industrial Stocks?
The best performing industrial stocks usually have at least one of the following characteristics:
- Solid growth in expanding economies
- Manageable debt in contracting economies
Solid growth in expanding economies
The best industrial stocks will grow during periods of economic expansion. Specifically, these top-performing industrial stocks have management that understands how to quickly shift into more efficient and faster manufacturing processes when the economy signals it is growing.
In other words, management of these industrial stocks understand that boom times are when their company has the best chance of success. They will throw everything they have behind their business to ensure it optimizes that part of the economic growth cycle.
Earnings should be growing in double digits during a period of economic expansion.
Manageable debt in contracting economies
When times are good, the best industrial stocks are producing a lot of income and a lot of cash flow. That’s important, not only to keep the business running during the good times, but to provide a backstop when the economy slows down.
The biggest problem an industrial stock can face is carrying too much debt. If the economy slows, the company is not able to produce enough cash flow, or does not have enough cash on hand, to be able to pay interest on its debt, it could spiral into bankruptcy.
In order to blunt the effects of a slowing economy, the more and varied types of businesses an industrial stock has under its umbrella, the less likely the slowing economy will affect the company as a whole.
Industrials include many different subsectors, as mentioned above. They don’t all move in tandem as far as their individual cycles go.
Thus, some subsectors will retain some strength while others are struggling.
Here’s a video that gives additional information on investing in industrial stocks.
The Boeing Company
What is it?
The Boeing Company designs, develops, manufactures, sales, services, and supports all kinds of products in the world of aerospace. This includes military aircraft, missile defense, satellites, and space flight and launch systems. Boeing is probably best known for its commercial aircraft.
What makes it a good stock?
One of the best industrial stocks you can invest in is one that is part of an oligarchy. An oligarchy is a sector that is controlled by a handful of companies.
In the case of aerospace, there are very few companies that can do what Boeing does. It is a highly complex industry, what with all the technology, mechanics, and logistics involved.
Not to mention all the training, aviation services support, spare parts, maintenance, and logistical advice that are needed for all of those planes.
Nor is there much competition for creating military aircraft. You probably can’t name more than three companies that produce military aircraft, much less commercial airliners.
Even better, aerospace and defense are critical parts of keeping our nation safe. Even in bad economic times with dovish Presidents, we always need national security. We even have a hawkish administration now, which pushes demand up even more.
China is also a big growth arena for Boeing, thanks to burgeoning travel demand for consumers. In fact, Boeing recently said that it expects $1.2 trillion in plane purchases over the next twenty years.
This all translates to fantastic financials for Boeing, which is why it’s a great stock.
2016 revenue of $94.6 billion has grown 4% to $98 billion over the trailing twelve months. However, the cost of that revenue fallen by 5%, which means bottom line profit grew from $4.9 billion in 2016 to almost $10 billion in the trailing twelve months.
Thus, Boeing’s long-term projected earnings of 23% vastly exceed its valuation of 18 times earnings, making it both a growth and a value stock.
What is it?
CSX provides railroad transportation services in North America. Its trains carry just about anything you can imagine that is available in bulk: chemicals, automotive product, agricultural and food products, fertilizers, metals, coal, minerals, and forest products.
What makes it a good stock?
Trains may seem like creaky relics of yesteryear, but the truth is that they are a critical part of the American economy.
Items need to be moved to keep the economy going. Many things are too big for planes. They are too big for cars and trucks. So trains handle those massive loads.
Trains are efficient, they can haul tons and tons of items, and they are safe.
For quite some time, railroad companies were suffering under onerous regulations. Then President Trump came into office, and cut way back on those regulations, and business for CSX – which was already solid – has exploded.
CSX has never had a year with more net income, so it’s no surprise that CSX is one of the top industrial stocks going in to 2019.
Remember how I mentioned that the best industrial stocks should be growing earnings in double-digits? Analysts project annualized earnings growth for CSX at 22% over the next five years.
Incredibly, CSX stock only trades at 19 times this year’s earnings, meaning it is both a value stock (because it trades at a multiple below its growth rate), and a growth stock (because it is growing more than 15% per year)
What is it?
United Technologies is one of the most diversified industrial stocks in the market. It owns and operates three major types of businesses: Aerospace; Climate, Controls, & Security; and elevators.
What makes it a good stock?
I mentioned that diversification was key to an industrial stock’s success. United Technologies fits the bill.
Its biggest component is the Climate, Controls & Security division. That division provides essential items for living everyday life: cooling, heating, home and business security, fire safety, and refrigeration.
People need these things no matter the state of the economy.
It also owns aerospace manufacturer Pratt & Whitney. As with Boeing, this is part of an oligarchy and is enjoying boom times.
Finally, if you’ve ever looked at the floor of an elevator, there’s a very good chance you’ll see the word “Otis”. That’s the company’s legendary elevator business.
United Technologies has an exceedingly stable revenue history, as well as a history of solid net income and cash flow. Revenue growth has been modest, but over the past four years, it has generated more than $23 billion in net income alone.
It routinely generates tons of free cash flow, anywhere from $2.1 billion in 2016 to $5.7 billion in 2014.