In this article, we discuss the 10 best industrial stocks to buy right now.
The industrial sector, also known as the secondary sector of an economy, transforms raw materials into finished products for the end user, deploying heavy machinery, designated production processes, and copious amounts of energy. Some of the most popular and in-demand industrial sectors are automobiles, chemicals, consumer electronics, industrial and steel equipment, aerospace, and energy.
Due to the COVID-19 pandemic, the industrial sector was among those segments of the economy that were heavily hit. The global supply chain disruption caused a severe shortage of raw materials, which halted manufacturing processes worldwide. Demand for automobiles, aerospace, consumer electronics, and industrial equipment dipped sharply, as people were experiencing unemployment and a lack of funds to spend on non-essential products. Similarly, lower B2B demand was experienced in the industrial sector as a result.
However, the impressive rate of vaccine distribution, fiscal stimulus packages, reopening of marketplaces, and the controlled level of COVID-19 cases have encouraged economic growth in 2021. Pent-up demand resulted in boosted in-store sales when establishments were allowed to reopen. As a result of continuing economic recovery, the US GDP in Q4 2020 grew by 4.3%, and the GDP increased by 6.4% in Q1 2021.
According to Deloitte US, production and order levels are still low as compared to the 2019 levels, but the trajectory of the decline has slowed. Total industrial capacity utilization was 74.5% in December, up from 64.1% in April. However, it’s still below pre-pandemic levels of 77%.
It will take some time for the industrial sector to bounce back from the reeling effects of the global COVID-19 pandemic, but it is on the right path. Some of the most notable industrial stocks include FedEx Corporation (NYSE:FDX) and Union Pacific Corporation (NYSE:UNP), among others discussed in detail below. These stocks are quite popular among the hedge funds as well.
Why should we pay attention to hedge fund sentiment while choosing stocks?
Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 86 percentage points since March 2017. Between March 2017 and July 2021, our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the S&P 500 ETF (SPY). Our stock picks outperformed the market by more than 86 percentage points (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Christian Lagerek/Shutterstock.com
Our Methodology
With this context in mind, let’s dive into the 10 best industrial stocks to buy right now. We selected stocks that were sought-after by the hedge funds, had mostly positive analyst ratings, and took factors like fundamental business strengths, earnings, and past performance in account as well. We ranked these stocks according to their popularity among the hedge funds.
Best Industrial Stocks To Buy Right Now
10. Deere & Company (NYSE:DE)
Number of Hedge Fund Holders: 52
Deere & Company (NYSE:DE) is an American manufacturer of agricultural machinery, heavy equipment, forestry equipment, diesel equipment, and lawn care equipment, also recognized by its brand name, John Deere. Deere & Company (NYSE:DE) is also a Fortune 500 Company that provides financial services as well. It is one of the best industrial stocks to buy now.
Ken Fisher’s Fisher Asset Management is the largest stakeholder in Deere & Company (NYSE:DE), with 158,829 shares worth roughly $53.2 million. Overall, 52 hedge funds tracked by Insider Monkey were bullish on Deere & Company (NYSE:DE) at the end of June, up from 51 in Q1.
BofA analyst Ross Gilardi kept a Buy rating on Deere & Company (NYSE:DE) and a price target of $425 on October 14, despite the strike by 10,000 UAW Deere members, which according to Gilardi has limited chances of continuation.
Here is what Harding Loevner has to say about Deere & Company (NYSE:DE) in its Q2 2021 investor letter:
“In the US, where we increased our weight as part of our recent portfolio manager transition, two of our industrial holdings stood out (one is) John Deere. John Deere delivered stronger-than-expected quarterly earnings and raised its guidance for the full-year. Sales of Deere’s tractors and combine harvesters are underpinned by Chinese demand for agriculture products and the bioethanol market rebounding with oil prices.”
9. Raytheon Technologies Corporation (NYSE:RTX)
Number of Hedge Fund Holders: 53
Raytheon Technologies Corporation (NYSE:RTX) is a multinational American aerospace and defense conglomerate, one of the largest companies in this sector based on revenue and market capitalization. Raytheon Technologies Corporation (NYSE:RTX) is engaged in the production of aircraft engines, avionics, aero-structures, guided missiles, air defense systems, satellites, and drones. Specializing in cybersecurity, Raytheon Technologies Corporation (NYSE:RTX) is a leading military contractor, which also makes it one of the best industrial stocks to buy now.
At the end of June, 53 hedge funds reported owning stakes in Raytheon Technologies Corporation (NYSE:RTX), with Ken Fisher’s Fisher Asset Management being the largest stakeholder, owning 7.16 million shares worth $616.2 million.
Wells Fargo analyst Matthew Akers kept an Equal Weight rating on Raytheon Technologies Corporation (NYSE:RTX), raising the price target to $97 from $91 on October 24. Akers stated that the Q3 results for Raytheon Technologies Corporation (NYSE:RTX) met his expectations, and the company has a positive outlook for the 2022.
Raytheon Technologies Corporation (NYSE:RTX) is a top industrial stock to purchase now, just like FedEx Corporation (NYSE:FDX) and Union Pacific Corporation (NYSE:UNP).
Here is what ClearBridge Investments has to say about Raytheon Technologies Corporation (NYSE:RTX) in its Q2 2021 investor letter:
“Broader market leadership was a relative benefit for the ClearBridge Large Cap Value Strategy, which outperformed the Russell 1000 Value Index in the second quarter… Separately, Raytheon Technologies benefited from an improving health outlook that is contributing to a faster than anticipated recovery in air travel, which should drive stronger results for Raytheon’s commercial aerospace business.”
8. TransDigm Group Incorporated (NYSE:TDG)
Number of Hedge Fund Holders: 57
TransDigm Group Incorporated (NYSE:TDG) is an Ohio-based aerospace manufacturing company, which engineers several aerospace components, including audio systems, ignition systems, engine sensors, aircraft hardware, cockpit security systems, and power conditioning, among others.
At the end of June, 57 hedge funds in Insider Monkey’s elite database were bullish on TransDigm Group Incorporated (NYSE:TDG).
RBC Capital analyst Ken Herbert on October 22 kept an Outperform rating on TransDigm Group Incorporated (NYSE:TDG), with a price target of $700. The analyst predicts that TransDigm Group Incorporated (NYSE:TDG) stock will experience 20% growth in the commercial aftermarket business in FY22.
Like FedEx Corporation (NYSE:FDX) and Union Pacific Corporation (NYSE:UNP), TransDigm Group Incorporated (NYSE:TDG) is a popular industrial stock to buy now.
Here is what Vulcan Value Partners has to say about TransDigm Group Incorporated (NYSE:TDG) in its Q2 2021 investor letter:
“TransDigm Group Inc., another material contributor during the quarter, is an aerospace manufacturer providing highly engineered, niche components for use on commercial and military aircraft. The vast majority of the company’s profits come from aftermarket sales. Its business was impacted by the global pandemic; however, the company has been able to maintain margins despite strong revenue headwinds, and it continues to generate strong free cash flow.”
7. Lockheed Martin Corporation (NYSE:LMT)
Number of Hedge Fund Holders: 58
Lockheed Martin Corporation (NYSE:LMT) is an American corporation that is operating in multiple sectors, including aerospace, weapons, information technology, and information security. Lockheed Martin Corporation (NYSE:LMT) is one of the largest companies operating in the industrial sector, providing crucial military support and security services. The technology division at Lockheed Martin Corporation (NYSE:LMT) is working with NASA, being the primary contractor for the Orion command module. It is one of the top industrial stocks to invest in.
At the end of the second quarter, 58 hedge funds in Insider Monkey’s database of elite funds were bullish on Lockheed Martin Corporation (NYSE:LMT), up from 50 in the previous quarter.
The company received contracts worth $5.1 billion as of September, and increased dividends by about 8%. Analysts are also positive that the space division at Lockheed Martin Corporation (NYSE:LMT) has immense growth potential.
RiverPark Advisors mentioned Lockheed Martin Corporation (NYSE:LMT) in its Q4 2020 investor letter. Here is what they said:
“Despite better-than-expected third quarter results, LMT shares were weak for the quarter as defense spending is expected to be flat for the coming year. With a record $150 billion backlog and almost 30% of its revenue coming from building F-35 aircraft with deliveries forecast to reach 180 per year in 4-5 years (3Q’s revenue upside was from the F-35), we believe LMT should grow at a higher rate than overall defense budget growth and Street expectations over the next several years. Further, strategic acquisitions (LMT acquired AJRD for $4 billion in late December), debt pay down, a 3% dividend yield, and continued share buybacks from $6 billion per year of free cash flow should lead to even greater shareholder returns.”
6. The Boeing Company (NYSE:BA)
Number of Hedge Fund Holders: 59
The Boeing Company (NYSE:BA) is a multinational corporation manufacturing airplanes, missiles, rockets, satellites, and rotorcrafts, among other aerospace and defense equipment. The Boeing Company (NYSE:BA) is one of the largest aerospace manufacturers worldwide. The four main business divisions at the Chicago-based The Boeing Company (NYSE:BA) include Boeing Commercial Airplanes, Boeing Defense, Space & Security, Boeing Capital, and Boeing Global Services. The Boeing Company (NYSE:BA) is one of the top industrial stocks to buy right now.
As of June this year, 59 hedge funds tracked by Insider Monkey’s database of 873 elite funds reported owning stakes in The Boeing Company (NYSE:BA).
Susquehanna analyst Charles Minervino, on October 28, kept a Positive rating on The Boeing Company (NYSE:BA). He stated that The Boeing Company (NYSE:BA) is positioned to experience strong cash flow and earnings growth once international travel restrictions are lifted.
5. Builders FirstSource, Inc. (NYSE:BLDR)
Number of Hedge Fund Holders: 60
Builders FirstSource, Inc. (NYSE:BLDR) manufactures and supplies building materials, prefabricated components and value-added services in America. Their main clientele is from the residential construction sector, as well as repair and remodeling professionals. Operating in 550 locations across 40 states in the US, Builders FirstSource, Inc. (NYSE:BLDR) is one of the top industrial stocks to buy right now.
Ken Fisher’s Fisher Asset Management owns 190,754 shares in Builders FirstSource, Inc. (NYSE:BLDR), valued at $9.87 million. Overall, 60 hedge funds tracked by Insider Monkey were bullish on Builders FirstSource, Inc. (NYSE:BLDR) at the end of Q2, up from 48 in Q1.
Builders FirstSource, Inc. (NYSE:BLDR) acquired Building Materials and Construction Solutions (BMC) for $2.5 billion in August, which added significant value to the shares of both companies. This acquisition resulted in a powerful revenue and profit boost for Builders FirstSource, Inc. (NYSE:BLDR) for second quarter, and the company was able to increase the scale of operations, overcome stringent labor supply, and realize approximately $13o million to $150 million in synergies.
Here is what Merion Road Capital Management has to say about Builders FirstSource, Inc. in its Q3 2021 investor letter:
“I added to our position in Builders FirstSource (“BLDR”) during the quarter. BLDR is the largest national supplier of structural building products and value-added components to the residential construction market. They have been active in consolidating the industry, most notably with the merger of BMC earlier this year. Like other distributors, BLDR benefits from scale advantages that afford them a robust product offering, enhanced purchasing power, and fixed cost leverage. They will continue to acquire smaller competitors and have announced 5 new deals so far this year.
I view the strategic benefit of these acquisitions in three different buckets. There are the core tuck-in acquisitions of facilities and customer lists that increase scale and geographic reach. An example would be the company’s May acquisition of John’s Lumber, a lumber and specialty product distributor serving the Detroit MSA, at 0.5x revenue. There are product acquisitions that leverage their platform to increase distribution and improve the product offering. For instance, last month BLDR announced the acquisition of California TrusFrame, a designer and manufacturer of prefabricated components like trusses and wall panels, at 1.3x revenue. And lastly BLDR has begun investing in software and services. In June they spent $450mm on the purchase of WTS Paradigm, a software company that addresses the complexity around building configuration, estimating, and manufacturing, at 9.0x revenue. By utilizing software to in the planning process, WTS Paradigm cuts down on material and labor waste, ensures an optimal fit of product and design, and eases the contractor’s workload. BLDR has followed this up with a much smaller software acquisition in September.
BLDR is in the very early innings of their software investment, so it is difficult to pinpoint exactly how it will impact the company in the coming years. Management believes that there is a lot of low hanging fruit, pointing to a McKinsey study ranking the construction industry as second to last on overall digitization. If anyone has had any work done to their house, I am sure they can anecdotally attest to this. BLDR plans to leverage WTS Paradigm to increase internal productivity (i.e. improved estimating leading to fewer visits to the job site), cross-sell the software to existing clients, and drive greater adoption of value-added products. So thinking a few years out I think the goal would be to have higher margins on their commodity business, a greater mix of revenue coming from value added products, a stronger relationship with their customer, and an enhanced competitive advantage…” (Click here to see the full text)
4. FedEx Corporation (NYSE:FDX)
Number of Hedge Fund Holders: 61
FedEx Corporation (NYSE:FDX) is an American multinational conglomerate holding company engaged in transportation, business services, and e-commerce. Today, FedEx Corporation (NYSE:FDX) is known for its flagship air courier and shipment service, FedEx Express. FedEx Corporation (NYSE:FDX) is also a key contractor for the US government, since it assists the US Postal Service with the distribution of packages via FedEx SmartPost. FedEx Corporation (NYSE:FDX) operates worldwide, and is one of the top industrial stocks on our extensive list.
At the end of the second quarter, 61 hedge funds were long FedEx Corporation (NYSE:FDX).
On October 8, Citi analyst Christian Wetherbee kept a Buy rating on FedEx Corporation (NYSE:FDX), with a $300 price target.
Here is what East 72 has to say about FedEx Corporation (NYSE:FDX) in its Q3 2021 investor letter:
“It has been some considerable time that the variables which contribute to profit growth estimation have been so volatile; not just the strictly financial aspects but the impact on timing of pandemic delays, consequent labour shortages, port and shipping delays (and costs) and resultant inefficiencies in the supply chain. Christmas stock arriving in January isn’t much use – and for some unlucky folks, that will be the case.
As a good example, FedEx Q1FY22 results reported a $450million increase in “costs due to a constrained labour market which impacted labour availability, resulting in network inefficiencies, higher wage rates, and increased purchased transportation expenses. This was partially offset by higher package and freight yields, increased international export express shipments and a favourable net fuel impact”3. If all of the costs were labour related, that would be around a 6% “inefficiency” increase. No inflation, don’t forget….”
3. Caterpillar Inc. (NYSE:CAT)
Number of Hedge Fund Holders: 62
Caterpillar Inc. (NYSE:CAT) is an American Fortune 100 company, manufacturing machinery, engines, financial products, and insurance to companies through an organized dealer network worldwide. It is the largest manufacturer of construction equipment in the world. Caterpillar Inc. (NYSE:CAT) is a Dow Jones Industrial Average Index Component, and it is one of the best industrial stocks to buy now.
At the end of June, 62 hedge funds traced by Insider Monkey were long Caterpillar Inc. (NYSE:CAT), with stakes roughly worth $5.26 billion, up from 53 in Q1, with a total stake value of almost $4.95 million.
On October 14, David Raso from Evercore ISI kept an Outperform rating on Caterpillar Inc. (NYSE:CAT).
Here is what Oakmark Funds has to say about Caterpillar Inc. (NYSE:CAT) in its Q2 2021 investor letter:
“Having followed the company closely for north of a decade, Caterpillar is a name we know well. For much of its history, the operating efficiency of the company left much to be desired, but its underlying competitive position was rarely in doubt. A series of actions over the past decade (e.g., LEAN implementation, improved service mix, optimized manufacturing footprint) helped to narrow the gap between Caterpillar’s potential and its realized results, driving material margin expansion and strong share price performance. In our view, the company remains among the highest quality industrials in the market, but its underlying business is cyclical, which can translate to large swings in both performance and investor sentiment over short time periods. Our ability to focus on the long-term, sustainable earnings power of a business (rather than getting distracted by near-term fluctuations) is our most significant edge when investing in cyclical businesses. Due to the inherent volatility in Caterpillar’s end markets and operating performance, we suspect we’ll have a future opportunity to own this high-quality business at a more attractive price once the cycle turns and today’s enthusiasm wears off.”
2. Union Pacific Corporation (NYSE:UNP)
Number of Hedge Fund Holders: 69
Union Pacific Corporation (NYSE:UNP) is a freight railroad mega company, operating about 8,300 locomotives across 23 US states. Union Pacific Corporation (NYSE:UNP) is the second largest railroad in the US, and forms a duopoly in the Western US with BNSF Railway.
Ken Fisher’s Fisher Asset Management is the largest stakeholder in Union Pacific Corporation (NYSE:UNP), with 4.76 million shares worth $934.5 million. Overall, 69 hedge funds in Insider Monkey’s exclusive database reported owning stakes in Union Pacific Corporation (NYSE:UNP) at the end of Q2.
RBC Capital analyst Walter Spracklin, on October 22, raised the price target for Union Pacific Corporation (NYSE:UNP) from $227 to $252, with an Outperform rating on the stock.
Here is what Vltava Fund has to say about Union Pacific Corporation (NYSE:UNP) in their Q1 2021 investor letter:
“There was a slight change in Vltava Fund’s portfolio in the first quarter. We sold shares of Union Pacific. It was one of three stocks we bought a year ago at the market bottom. Although from a P/E viewpoint this was one of our most expensive purchases ever, the shares worked out quite well, and, when they were more than 90% higher at the beginning of this year, we decided to take profit and put the money into stocks with more attractive valuations.”
1. Applied Materials, Inc. (NASDAQ:AMAT)
Number of Hedge Fund Holders: 73
Applied Materials, Inc. (NASDAQ:AMAT) ranks first on our list of the best industrial stocks to buy right now. Applied Materials, Inc. (NASDAQ:AMAT) is an American corporation providing equipment and software to develop semiconductor chips to be used in electronics, solar products, and hardware for computers, smartphones, and televisions. Applied Materials, Inc. (NASDAQ:AMAT) expanded its operations by a series of strategic mergers and acquisitions within the semiconductor and electronics industry over the years.
Applied Materials, Inc. (NASDAQ:AMAT) is a popular industrial stock among hedge funds. At the end of Q2, 73 hedge funds were long Applied Materials, Inc. (NASDAQ:AMAT), with a total stake value of approximately $4.59 billion. Cantillon Capital Management is the leading shareholder in Applied Materials, Inc. (NASDAQ:AMAT) as of June this year, with with 3.66 million shares worth $472.3 million.
Piper Sandler analyst Weston Twigg, on October 14, kept a Neutral rating on Applied Materials, Inc. (NASDAQ:AMAT), with a $130 price target. The analyst believes that Applied Materials, Inc. (NASDAQ:AMAT) can achieve the targets it has set for 2024, and with growing demand for semiconductors, the shareholder returns should remain high.
Here is what Vulcan Value Partners has to say about Applied Materials, Inc. (NASDAQ:AMAT) in its Q2 2021 investor letter:
“We purchased Applied Materials Inc. during the quarter. Applied Materials provides materials engineering solutions for semiconductor fabrication equipment and manufacturing tools for advanced displays. The industry has consolidated, leaving five companies that make up approximately 70% of the market. Applied Materials is the largest of the five. Key shifts in the industry are driving demand for more complex capital equipment. Among these shifts are the acceleration in digital transformation of the global economy, the slowing of Moore’s law, and increased application of artificial intelligence (AI). Growth in the company’s services segment creates a predictable revenue stream, enduring customer relationships, and better visibility into future technologies and client needs.”
You can also take a look at 11 Best Dividend Aristocrats with over 3% Yield and George Baxter’s Sabrepoint Capital is Buying UPWK, MSFT, and More.
Follow Insider Monkey on Twitter
Suggested articles:
- Top 10 SPACs to Buy According to Richard Gerson’s Falcon Edge Capital
- 12 Best Long-Term Dividend Stocks To Buy Now
- 12 Best Software Stocks To Buy According To Hedge Funds
Disclosure: None. 10 Best Industrial Stocks To Buy Right Now is originally published on Insider Monkey.
