14 Best Industrial Stocks to Buy According to Hedge Funds

Published on May 27, 2023 at 9:25 am by Aima Zaheer in Hedge Funds, News

In this article, we will be taking a look at the 14 best industrial stocks to buy according to hedge funds. To skip our analysis of the industrials sector, you can go directly to see the 5 Best Industrial Stocks to Buy According to Hedge Funds.

According to McKinsey, key players in the industrials sector have generated value by emphasizing product margin optimization and engaging in mergers and acquisitions (M&A) during the last two decades. The success of these strategies can be gauged by the fact that from 2014-2019, the return on capital employed (ROCE) of the sector rose 13%, surpassing the usual sector-level weighted average cost of capital, which typically ranges from 8% to 10%. Furthermore, the yearly shareholder returns of the industrials sector recorded a growth of approximately 400 basis points in comparison to the last 15 years. While industrial enterprises were able to recover strongly from the recessionary period post-pandemic, they now face a difficult operating environment characterized by significant changes in customer buying patterns, labour market dynamics, and the international supply chain network.

Moving into 2023, the industrials sector is expected to face similar concerns to other industries, particularly rising inflationary pressures and the heightened risk of a recession in the United States or globally. However, according to Fidelity Investments, for investors with a long-term perspective, there are three noteworthy trends within the sector that present opportunities for industrial companies based in the US. These trends include digital transformation, a growing emphasis on sustainability, and a shift towards domestic production as opposed to relying on extensive global supply chains. The growing focus on sustainability is resulting in industrial companies venturing into new avenues concerning green products and services. As per McKinsey, the value of sustainable solutions has already demonstrated its significance. For instance, the complete sustainability value chain of transport has the potential to reach a valuation of $2.3 trillion to $2.7 trillion by 2030. Investors are further projected to invest an additional $4 trillion towards the development of new decarbonization ventures by 2025.

Furthermore, the industrials sector is also expected to benefit from the increased spending on national infrastructure following the pandemic. To aid the economy’s recovery, in November 2021, legislators approved a substantial $1.2 trillion infrastructure bill, which is expected to generate a significant increase in sales for industrial companies involved in providing construction equipment and services in the coming years. The bill includes funding for various sub-sectors in the industry, including road and rail transportation, electrical equipment, aerospace, and industrial machinery. Keeping in view the aforementioned trends and developments, notable companies in the sector, such as TransDigm Group Incorporated (NYSE:TDG), Union Pacific Corporation (NYSE:UNP) and General Electric Company (NYSE:GE), have been investing in advanced technologies and expanding their provision of services to cash on the pent-up demand. This has also resulted in higher profitability for companies like Transdigm Group Incorporated, as evident by their latest earnings call for Q1 2023:

Our Q1 results show positive growth in comparison to the same prior year period. We are encouraged by the progression of the commercial aerospace market recovery to date, and trends in the commercial aerospace market remain favorable as demand for travel remains robust. In our business, we saw another quarter of very healthy growth in our total commercial revenues and bookings. Bookings also outpaced revenues in all 3 of our major market channels, commercial OEM, commercial aftermarket and defense. We also attained an EBITDA as defined margin of 50% in the quarter. Contributing to the strong margin is the continued recovery in our commercial aftermarket revenues, along with diligent focus on our operating strategy. Additionally, we had strong operating cash flow generation in Q1 of almost $380 million and ended the quarter with close to $3.3 billion of cash. We expect to steadily generate significant additional cash throughout the remainder of 2023. Next, an update on our capital allocation activities and priorities. The capital allocation priorities at TransDigm are unchanged. Our first priority is to reinvest in our businesses; second, to do accretive M&A; and third, return capital to our shareholders via share buybacks or dividends. A fourth option paying down debt seems unlikely at this time, though we do still take this into consideration. We are continually evaluating all of our capital allocation options. As mentioned earlier, we ended the quarter with a sizable cash balance of close to $3.3 billion, which leaves us with significant liquidity and financial flexibility to meet any likely range of capital requirements or other opportunities in the readily foreseeable future. Regarding the current M&A pipeline, we are actively looking for M&A opportunities that fit our model. Click here to read the full earnings call transcript.

With this context in mind, let’s take a look at the 14 best industrial stocks to buy according to hedge funds.

Our Methodology

We used Insider Monkey’s database of 943 elite funds to select the 14 best industrial stocks with the highest number of hedge fund investors as of Q1 2023. The stocks have been ranked in ascending order of the hedge fund ownership.

Best Industrial Stocks to Buy According to Hedge Funds

14. Raytheon Technologies Corporation (NYSE:RTX)

No of Hedge Fund Holders: 48

Raytheon Technologies Corporation (NYSE:RTX) is a Virginia-United Stated-based aerospace and defence company. The company offers advanced solutions to government, military, and commercial customers.

Raytheon Technologies Corporation (NYSE:RTX) is amongst the largest aerospace and defence providers in the world in terms of market capitalization and revenue. On May 25, Raytheon Technologies Corporation (NYSE:RTX) was granted a contract valued at $619 million by the Office of Naval Research. The contract aims to facilitate the development of new hardware for the United States Navy’s Family of Radars.

Here’s what Carillon Tower Advisers said about Raytheon Technologies Corporation (NYSE:RTX) in its Q3 2022 investor letter:

“Raytheon Technologies Corporation (NYSE:RTX) announced strong results led by strength in its commercial segment, but weakness in its defense business led to investor consternation. Management guided to a recovery in this segment, citing both transitory supply chain issues and continued strong demand.”

13. Parker-Hannifin Corporation (NYSE:PH)

No of Hedge Fund Holders: 49

Parker-Hannifin Corporation (NYSE:PH) specializes in providing motion and control technologies for various markets, ranging from mobile to industrial and aerospace.

The company posted strong Q3 2023 results, with quarterly sales reaching $5.1 billion. This reflected an increase of 24% from the same period last year. Furthermore, Parker-Hannifin Corporation (NYSE:PH) announced an 11% year-on-year (YoY) increase in its quarterly dividend. The stock’s annual forward dividend yield stands at 1.84% as of May 25.

Harris Associates was the leading hedge fund investor in Parker-Hannifin Corporation (NYSE:PH) during Q1 2023, with a stake worth over $892 million.

12. 3M Company (NYSE:MMM)

No of Hedge Fund Holders: 51

3M Company (NYSE:MMM) is engaged in the production of safety, industrial, and consumer products.

In Q1 2023, 3M Company (NYSE:MMM) reported an adjusted free cash flow of approximately $950 million, reflecting a YoY increase of 24%. The company attributed the improvement to reduced yearly incentive cash compensation and efficient working capital management. Furthermore, 3M Company (NYSE:MMM) also revealed that the company had managed to reduce its inventory levels by $500 million since August last year.

Overall, 51 hedge funds held a stake in 3M Company (NYSE:MMM) during Q1 2023.

11. Caterpillar Inc. (NYSE:CAT)

No of Hedge Fund Holders: 52

Caterpillar Inc. (NYSE:CAT) is a Texas, United States-based producer of construction equipment and related machinery.

On May 9, David Raso at Evercore ISI gave Caterpillar Inc. (NYSE:CAT) stock a price target of $263 and assigned an Outperformed rating. On average, the company raised its EPS estimates for FY 2023 by 5% to 7%, post the Q1 earnings season.

Here’s what Diamond Hill Capital said about Caterpillar Inc. (NYSE:CAT) in its Q4 2022 investor letter:

“In the case of Caterpillar Inc. (NYSE:CAT), the company reported a better-than-expected Q3 as demand in mining, non-residential construction and energy remained healthy through the year even as recession fears grew. Caterpillar showed strong pricing power and operating efficiency in the face of supply chain constraints and labor shortages, which in turn contributed to better-than-expected share price performance.”

10. The Boeing Company (NYSE:BA)

No of Hedge Fund Holders: 52

The Boeing Company (NYSE:BA) is an established American multinational corporation engaged in the design, manufacturing, and sale of various aerospace products.

Two Sigma Advisors raised its stake in The Boeing Company (NYSE:BA) by over 1000% during the first quarter of the year. Of the 943 hedge funds being tracked by Insider Monkey at the end of Q1 2023, The Boeing Company (NYSE:BA) was held by 52 hedge funds.

9. FedEx Corporation (NYSE:FDX)

No of Hedge Fund Holders: 55

FedEx Corporation (NYSE:FDX) is primarily involved in the provision of transportation, e-commerce, and business services.

The number of hedge funds having a stake in FedEx Corporation (NYSE:FDX) increased from 48 in Q4 2022 to 55 in Q1 2023. Citadel Investment Group was the leading hedge fund investor in the company, with a stake worth over $467 million during the first quarter of the year.

Artisan Partners shared its outlook on FedEx Corporation (NYSE:FDX) in its Q1 2023 investor letter. Here’s what the firm said:

“After bottoming in September 2022 at less than 8X our estimate of normalized earnings, shares of FedEx Corporation (NYSE:FDX), a global shipping and logistics firm, have rallied strongly over the past six months. The demand environment remains challenging, particularly in the Express segment due to lower volumes in Asia and Europe. A key question remains how much the demand slowdown is idiosyncratic due to the post-pandemic reopening of the international economy and therefore less likely to repeat and how much is due to a cyclical slowdown. Due to the substantial pessimism already priced into shares, it hasn’t taken much for shares to rise soundly. Better-than-expected operating results and progress on cost-cutting initiatives, including additional headcount reductions, to offset cost pressures were well-received. While operating results can be choppy, FedEx’s longer term business economics are highly favorable given the global shipping industry’s consolidated structure and massive barriers to entry that afford operators with pricing power to counter cost inflation and earn respectable returns on capital over the business cycle.”

8. Eaton Corporation plc (NYSE:ETN)

No of Hedge Fund Holders: 55

Eaton Corporation plc (NYSE:ETN) is a power management company with a rich history of over 100 years. The company is headquartered in Dublin, Ireland.

In Q1 2023, Eaton Corporation plc (NYSE:ETN) posted an EPS of $1.88, up 16% from the same period last year. Furthermore, the company recorded sales of $5.5 billion, reflecting a quarterly increase of 15% organically. Eaton Corporation plc (NYSE:ETN) offers an annual forward dividend yield of 1.94% as of May 25. The company’s strong business fundamentals make it one of the best industrial stocks to buy, according to hedge funds.

7. Honeywell International Inc. (NASDAQ:HON)

No of Hedge Fund Holders: 58

Honeywell International Inc. (NASDAQ:HON) is a Charlotte, North Carolina-based company involved in various businesses such as building technologies, aerospace, and productivity solutions.

On May 2, John Eade at Argus gave Honeywell International Inc. (NASDAQ:HON) a Buy rating with a price target of $230. The analyst thinks this is an ideal opportunity to build a position in one of the best industrial stocks in the market, as the company has a strong balance sheet and a history of outperforming its targets.

As of Q1 2023, 58 hedge funds reported owning a stake in Honeywell International Inc. (NASDAQ:HON), up from 44 in the previous quarter.

6. Lockheed Martin Corporation (NYSE:LMT)

No of Hedge Fund Holders: 58

Lockheed Martin Corporation (NYSE:LMT) has a global presence in the aerospace, defence, technology, and information security sectors.

On May 18, Lockheed Martin Corporation (NYSE:LMT) announced that it had been granted a firm-fixed-price contract valued at $750.55 million. The contract relates to Lot 21 Joint Air-to-Surface Standoff Missile B-2 missiles and includes containers, tooling and test equipment, as well as spares.

Here’s what Vltava Fund said about Lockheed Martin Corporation (NYSE:LMT) in its Q3 2022 investor letter:

“LMT is one of the world’s largest aerospace and defence companies. The war in Ukraine has reminded investors and the wider public just how important these companies are. The aerospace and defence industry in the USA is an established oligopoly. This means that a few large firms play a dominant role. While collectively they comprise an oligopoly, individually they often have monopoly positions in particular narrower segments. Their main counterparty is the US government, a key customer in what is known as a monopsonist position. This is a rather unusual situation, but one that is very advantageous for companies such as LMT.

LMT has a strong and long-term sustainable competitive advantage ensuing from the fact that its products are developed and manufactured at an extremely high level of technology and complexity, its development and contract cycles are measured in decades, and the costs for the government to switch to alternative suppliers are high. Moreover, part of the production is classified as secret, which further takes the wind out of the sails of potential competitors. This results in a very high return on capital and admittedly a slowly but steadily growing business.

In most NATO countries, which are LMT’s customers, defence outlays are based upon the size of GDP. This is currently growing very fast in nominal terms due to inflation in most countries. A number of countries have also announced significant increases in defence budgets, whether it be Germany, which aims to get to the NATO-agreed 2% of GDP, or Poland, which wants to spend more than twice as much on defence…” (Click here to see the full text)

In addition to Lockheed Martin Corporation (NYSE:LMT), stocks such as TransDigm Group Incorporated (NYSE:TDG), Union Pacific Corporation (NYSE:UNP) and General Electric Company (NYSE:GE) are also amongst the best industrial stocks to buy according to hedge funds.

Click to continue reading and see the 5 Best Industrial Stocks to Buy According to Hedge Funds.

AI Fire Sale: Insider Monkey’s #1 AI Stock Pick Is On A Steep Discount

Published on May 1, 2024 at by Inan Dogan, PhD

Artificial intelligence is the greatest investment opportunity of our lifetime. The time to invest in groundbreaking AI is now, and this stock is a steal!

The whispers are turning into roars.

Artificial intelligence isn’t science fiction anymore.

It’s the revolution reshaping every industry on the planet.

From driverless cars to medical breakthroughs, AI is on the cusp of a global explosion, and savvy investors stand to reap the rewards.

Here’s why this is the prime moment to jump on the AI bandwagon:

Exponential Growth on the Horizon: Forget linear growth – AI is poised for a hockey stick trajectory.

Imagine every sector, from healthcare to finance, infused with superhuman intelligence.

We’re talking disease prediction, hyper-personalized marketing, and automated logistics that streamline everything.

This isn’t a maybe – it’s an inevitability.

Early investors will be the ones positioned to ride the wave of this technological tsunami.

Ground Floor Opportunity: Remember the early days of the internet?

Those who saw the potential of tech giants back then are sitting pretty today.

AI is at a similar inflection point.

We’re not talking about established players – we’re talking about nimble startups with groundbreaking ideas and the potential to become the next Google or Amazon.

This is your chance to get in before the rockets take off!

Disruption is the New Name of the Game: Let’s face it, complacency breeds stagnation.

AI is the ultimate disruptor, and it’s shaking the foundations of traditional industries.

The companies that embrace AI will thrive, while the dinosaurs clinging to outdated methods will be left in the dust.

As an investor, you want to be on the side of the winners, and AI is the winning ticket.

The Talent Pool is Overflowing: The world’s brightest minds are flocking to AI.

From computer scientists to mathematicians, the next generation of innovators is pouring its energy into this field.

This influx of talent guarantees a constant stream of groundbreaking ideas and rapid advancements.

By investing in AI, you’re essentially backing the future.

The future is powered by artificial intelligence, and the time to invest is NOW.

Don’t be a spectator in this technological revolution.

Dive into the AI gold rush and watch your portfolio soar alongside the brightest minds of our generation.

This isn’t just about making money – it’s about being part of the future.

So, buckle up and get ready for the ride of your investment life!

Act Now and Unlock a Potential 10,000% Return: This AI Stock is a Diamond in the Rough (But Our Help is Key!)

The AI revolution is upon us, and savvy investors stand to make a fortune.

But with so many choices, how do you find the hidden gem – the company poised for explosive growth?

That’s where our expertise comes in.

We’ve got the answer, but there’s a twist…

Imagine an AI company so groundbreaking, so far ahead of the curve, that even if its stock price quadrupled today, it would still be considered ridiculously cheap.

That’s the potential you’re looking at. This isn’t just about a decent return – we’re talking about a 10,000% gain over the next decade!

Our research team has identified a hidden gem – an AI company with cutting-edge technology, massive potential, and a current stock price that screams opportunity.

This company boasts the most advanced technology in the AI sector, putting them leagues ahead of competitors.

It’s like having a race car on a go-kart track.

They have a strong possibility of cornering entire markets, becoming the undisputed leader in their field.

Here’s the catch (it’s a good one): To uncover this sleeping giant, you’ll need our exclusive intel.

We want to make sure none of our valued readers miss out on this groundbreaking opportunity!

That’s why we’re slashing the price of our Premium Readership Newsletter by a whopping 75%.

For a ridiculously low price of just $24, you can unlock a year’s worth of in-depth investment research and exclusive insights – that’s less than a single restaurant meal!

Here’s why this is a deal you can’t afford to pass up:

The Name of the Game-Changing AI Stock: Our in-depth report dives deep into our #1 AI stock’s groundbreaking technology and massive growth potential.
Ad-Free Browsing: Enjoy a year of investment research free from distracting banner and pop-up ads, allowing you to focus on uncovering the next big opportunity.
Lifetime Money-Back Guarantee: If you’re not absolutely satisfied with our service, we’ll provide a full refund ANYTIME, no questions asked.

Space is Limited! Only 1000 spots are available for this exclusive offer. Don’t let this chance slip away – subscribe to our Premium Readership Newsletter today and unlock the potential for a life-changing investment.

Here’s what to do next:

Head over to our website and subscribe to our Premium Readership Newsletter for just $24.
Enjoy a year of ad-free browsing, exclusive access to our in-depth report on the revolutionary AI company, and the upcoming issues of our Premium Readership Newsletter over the next 12 months.
Sit back, relax, and know that you’re backed by our ironclad lifetime money-back guarantee.

Don’t miss out on this incredible opportunity! Subscribe now and take control of your AI investment future!

Subscribe Now!

A New Dawn is Coming to U.S. Stocks

Published on May 2, 2024 at by Insider Monkey Staff

I work for one of the largest independent financial publishers in the world – representing over 1 million people in 148 countries.

We’re independently funding today’s broadcast to address something on the mind of every investor in America right now…

Should I put my money in Artificial Intelligence?

Here to answer that for us… and give away his No. 1 free AI recommendation… is 50-year Wall Street titan, Marc Chaikin.

Marc’s been a trader, stockbroker, and analyst. He was the head of the options department at a major brokerage firm and is a sought-after expert for CNBC, Fox Business, Barron’s, and Yahoo! Finance…

But what Marc’s most known for is his award-winning stock-rating system. Which determines whether a stock could shoot sky-high in the next three to six months… or come crashing down.

That’s why Marc’s work appears in every Bloomberg and Reuters terminal on the planet…

And is still used by hundreds of banks, hedge funds, and brokerages to track the billions of dollars flowing in and out of stocks each day.

He’s used this system to survive nine bear markets… create three new indices for the Nasdaq… and even predict the brutal bear market of 2022, 90 days in advance.

Click to continue reading…

Insider Monkey Ads

Markets

Insider Trading

Hedge Funds

Retirement

Opinion

Log In

Sign Up