In this piece, we will take a look at the 14 most profitable industrial stocks to buy now.
The industrial sector plays a fundamental role in the U.S. economy, encompassing manufacturing, construction, mining, and utilities. Over the years, it has adapted to globalization, technological advancements, and changes in consumer preferences. The integration of automation and digitalization has revolutionized production processes, enhancing efficiency but also impacting employment patterns. Industrial stocks, typically recognized for their stability and resilience, have traditionally outperformed the broader market during periods of economic expansion and recovery. However, the current year has witnessed a departure from this trend. In 2023, the S&P 500 Industrial Index has seen a gain of 10.53%, lagging behind the broader S&P 500, which posted a 20.7% gain.
However, underestimating the sector’s potential for 2024 and beyond could be a mistake for investors. The challenges in the supply chain during the pandemic and heightened geopolitical tensions have underscored the benefits of increased US self-sufficiency after decades of underinvestment in the country’s industrial base. Consequently, there is a significant influx of federal funding and other incentives, amounting to hundreds of billions of dollars, poised to support infrastructure development, onshoring/reshoring initiatives, climate change mitigation, and the “electrification of everything.”
According to McKinsey, leading players in the industrials sector have created value by prioritizing product margin optimization and actively participating in mergers and acquisitions (M&A) over the past two decades. The effectiveness of these strategies is evident in the period from 2014 to 2019, where the return on capital employed (ROCE) for the sector increased by 13%, surpassing the typical sector-level weighted average cost of capital, typically ranging from 8% to 10%. Moreover, the sector’s annual shareholder returns saw an expansion of around 400 basis points compared to the preceding 15 years.
Considering the trends and developments mentioned above, prominent companies in the sector, including Deere & Company (NYSE:DE), Union Pacific Corporation (NYSE:UNP), and General Electric Company (NYSE:GE), have been actively investing in advanced technologies and broadening their service offerings to capitalize on the pent-up demand.
An industrial complex with a large fleet of machines in the background.
Our Methodology
In curating our selection of the most profitable industrial stocks to invest in, we extensively reviewed Insider Monkey’s Q3 2023 database to pinpoint industry leaders assessed by hedge fund sentiment. Following that, the shortlisted companies were ranked according to their trailing twelve month net income.
14. TransDigm Group Incorporated (NYSE:TDG)
Number of Hedge Fund Holders: 67
Latest TTM Net Income: $1.26 billion
Cleveland-based TransDigm Group Incorporated (NYSE:TDG) is a publicly traded aerospace manufacturing company founded in 1993 through the consolidation of four industrial aerospace firms in a leveraged buyout. The company, specializing in the development and production of engineered aerospace components, operates through three main segments: Power & Control, Airframe, and Non-aviation. Serving a diverse clientele, including engine and power system component suppliers, airlines, third-party maintenance providers, military procurement agencies, and repair facilities, TransDigm Group is a key player in the aerospace industry.
TransDigm Group Incorporated delivered an exceptional performance in the fourth quarter of 2023, surpassing consensus expectations across key metrics, including revenue, EBITDA, and EPS. Additionally, the company provided FY24 guidance that exceeded consensus estimates. The robust quarter was complemented by the announcement of a new $2 billion special dividend. Specifically, TDG reported an EPS of $8.03, outperforming the consensus estimate of $7.55. This performance was underpinned by robust organic revenue growth of 19%, driven by a 27% increase in Commercial aftermarket, a 22% rise in Commercial OEM, and a 15% growth in Defense.
As of September 2023, 67 hedge funds out of the 910 tracked by Insider Monkey included TransDigm Group Incorporated in their portfolios. Among these, AltaRock Partners, led by Mark Massey, emerged as the company’s biggest shareholder, possessing 1.3 million shares valued at $1.10 billion.
Much like Deere & Company, Union Pacific Corporation, and General Electric Company, TransDigm Group Incorporated ranks as one of the most profitable industrial stocks to invest in.
13. Republic Services, Inc. (NYSE:RSG)
Number of Hedge Fund Holders: 37
Latest TTM Net Income: $1.64 billion
Republic Services, Inc. (NYSE:RSG) operates as a waste disposal company in North America, offering a range of services such as non-hazardous solid waste collection, waste transfer, waste disposal, recycling, and energy services. It holds the position of being the second-largest provider of waste disposal services in the United States.
During the third quarter of 2023, Republic Services, Inc. demonstrated a robust financial position, reporting an operating cash flow exceeding $2.8 billion and free cash flow totaling $1.8 billion. In this period, the company distributed approximately $470 million in dividends. Notably, Republic Services, Inc. has consistently increased its dividends for 19 consecutive years, currently offering a quarterly dividend of $0.535 per share.
As of the close of Q3 2023, 37 hedge funds tracked by Insider Monkey owned stakes in Republic Services, Inc., which remained unchanged from the previous quarter. The collective worth of these stakes is over $1.17 billion.
12. Waste Management, Inc. (NYSE:WM)
Number of Hedge Fund Holders: 41
Latest TTM Net Income: $2.31 billion
Waste Management, Inc. (NYSE:WM), commonly known as “WM,” is a leading waste management, environmental services, and comprehensive waste solutions company serving North America. Established in 1968, the company is headquartered in the Bank of America Tower in Houston, Texas.
On October 26, Stifel analyst Michael Hoffman increased the price target for Waste Management, Inc. from $177 to $183 while maintaining a Buy rating on the shares. The analyst highlighted the stellar financial performance in Q3 2023, with revenue witnessing a growth of over 2.4%. Additionally, the company’s robust pricing power and cost-cutting initiatives have enhanced resilience to macroeconomic challenges in recycling and renewable energy. Waste Management, Inc. anticipates that its sustainable investments sector will generate an additional $740 million in EBITDA by 2026, contributing to long-term growth.
The number of hedge funds in Insider Monkey’s database owning stakes in Waste Management, Inc. grew to 41 in Q3 2023, from 39 in the preceding quarter. The consolidated value of these stakes is nearly $6 billion. Among these hedge funds, Bill & Melinda Gates Foundation Trust was the company’s leading stakeholder in Q3.
11. RTX Corporation (NYSE:RTX)
Number of Hedge Fund Holders: 63
Latest TTM Net Income: $3.19 billion
RTX Corporation (NYSE:RTX), a firm specializing in aerospace and defense, delivers systems and services to clients in the worldwide commercial, military, and government sectors. The company is organized into four primary segments: Collins Aerospace, Pratt & Whitney, Raytheon Intelligence & Space, and Raytheon Missiles & Defense.
RTX Corporation announced surpassing quarterly earnings expectations in October, with robust performance in its Collins Aerospace business offsetting the repercussions of a significant quality crisis in its engine-making unit, Pratt and Whitney. Additionally, the company greenlit a $10 billion share repurchase program, to be financed through short and long-term debt.
According to Insider Monkey’s third quarter database, 63 hedge funds were bullish on RTX Corporation, compared to 56 funds in the prior quarter. Ken Fisher’s Fisher Asset Management is the largest stakeholder of the company, with 9.47 million shares worth $681.9 million.
Matrix Asset Advisors made the following comment about RTX Corporation in its Q3 2023 investor letter:
“In Q3, we started a new position in RTX Corporation (NYSE:RTX), formerly Raytheon Technologies, an aerospace and defense company that provides advanced systems and services for commercial, military and government customers worldwide. The company was formed in 2020 through the combination of Raytheon Company and the United Technologies Corporation aerospace businesses. We had previously owned United Technologies and were impressed with their CEO, Greg Hayes, now the CEO of RTX. The opportunity to purchase RTX came after the company disclosed a problem with an engine component that will result in a significant charge to inspect and replace. This is a fixable issue requiring time and money, but we believe the price decline provided a good opportunity to start a position in this highly profitable, well-managed company.”
10. General Dynamics Corporation (NYSE:GD)
Number of Hedge Fund Holders: 39
Latest TTM Net Income: $3.3 billion
General Dynamics Corporation (NYSE:GD) is a global enterprise with a focus on aerospace and defense, structured into four primary segments: Aerospace, specializing in business jet manufacturing and related services; Marine Systems, dedicated to submarine and ship construction; Combat Systems, engaged in armored vehicle and weapons production; and Technologies, providing IT and communication solutions.
At the end of September 2023, 39 hedge funds owned stakes in General Dynamics Corporation, according to Insider Monkey’s database. These stakes have a total value of more than $7 billion. Longview Asset Management was the largest stakeholder of the company in Q3.
9. CSX Corporation (NASDAQ:CSX)
Number of Hedge Fund Holders: 62
Latest TTM Net Income: $3.85 billion
Established in 1980 through the merger of the Chessie System and Seaboard Coast Line Industries, CSX Corporation (NASDAQ:CSX) is an American holding company with a primary focus on rail transportation and real estate in North America, among other industries.
On October 11, CSX Corporation announced a quarterly dividend of $0.11 per share, consistent with the previous payout. The dividend was scheduled for distribution on December 15 to shareholders of record as of November 30. This corresponds to a yield of 1.28% as of December 18.
At the end of Q3 2023, 62 hedge funds in Insider Monkey’s database reported having stakes in CSX Corporation, down from 64 in the previous quarter. The overall value of these stakes is nearly $3.86 billion.
8. FedEx Corporation (NYSE:FDX)
Number of Hedge Fund Holders: 67
Latest TTM Net Income: $4.17 billion
FedEx Corporation (NYSE:FDX), previously known as Federal Express Corporation and later FDX Corporation, is an American multinational conglomerate holding company with a focus on transportation, e-commerce, and business services. The company is headquartered in Memphis, Tennessee. As of December 18, the company provides a quarterly dividend of $1.26 per share, resulting in a dividend yield of 1.79%.
FedEx Corporation was a part of 67 hedge fund portfolios at the end of Q3 2023, up from 62 a quarter earlier, according to Insider Monkey’s database. The stakes held by these hedge funds have a collective value of nearly $3 billion.
7. Honeywell International Inc. (NASDAQ:HON)
Number of Hedge Fund Holders: 60
Latest TTM Net Income: $5.41 billion
Honeywell International Inc. (NASDAQ:HON) is a publicly traded American multinational conglomerate corporation, operating across four main business areas: aerospace, building technologies, performance materials and technologies, and safety and productivity solutions.
On October 26, 2023, Honeywell International Inc. released its Q3 2023 earnings report, showcasing a strong performance that met or exceeded the company’s expectations. The report indicated a 3% year-over-year increase in sales and a 2% growth in organic sales, propelled by significant organic sales expansion in commercial aviation, defense and space, and process solutions. Earnings per share for the third quarter were reported at $2.27, demonstrating minimal change on a reported basis compared to the previous year and a 1% increase year over year on an adjusted basis.
As of the end of the third quarter in 2023, 60 out of the 910 hedge funds surveyed by Insider Monkey had positions in Honeywell International Inc.. The largest shareholder among these is Two Sigma Advisors, led by John Overdeck and David Siegel, with an investment of $406 million.
6. Union Pacific Corporation (NYSE:UNP)
Number of Hedge Fund Holders: 90
Latest TTM Net Income: $6.37 billion
Union Pacific Corporation, operating through its subsidiary Union Pacific Railroad Company, is engaged in the railroad business within the United States. The company provides transportation services catering to various industries and their respective products.
In October, Deutsche Bank upgraded the stock of the railroad company from Hold to Buy, attributing the decision to the anticipated rise in rail volumes, and concurrently assigned a $235 price target for Union Pacific Corporation stock.
At the end of September 2023, 90 hedge funds in Insider Monkey’s database reported having stakes in Union Pacific Corporation, up from 87 in the previous quarter. The total value of these stakes is over $5.4 billion. With over 8.2 million shares, Soroban Capital Partners was the company’s leading stakeholder in Q3.
Cooper Investors made the following comment about Union Pacific Corporation in its Q3 2023 investor letter:
“The major focus in Texas was spending a day visiting operations of Union Pacific Corporation (NYSE:UNP), a Stalwart investment made earlier this year.
Our investigations into the railroad industry have felt like a history lesson of the late 19th Century, a peek into the Gilded Age. At this time railroads became a transformative force that connected the East Coast to the Western frontier, pushing the economic potential of US industry and commerce to new heights. Over a century later and despite technological upheaval, the freight railroads of North America still feel just as relevant and a key part of the new industrial age.
To own, operate and invest in a railroad is to be a part of the lifeblood of North America. It is to witness the movement of grain, concrete, steel, wood, energy, autos, and shipping containers across vast distances. These are irreplaceable assets that could not be built today, and for the most part have very few substitutes – UNPs tagline “Building America” certainly rings true…” (Click here to read the full text)
5. Lockheed Martin Corporation (NYSE:LMT)
Number of Hedge Fund Holders: 60
Latest TTM Net Income: $6.97 billion
Lockheed Martin Corporation (NYSE:LMT), formed by the merger of Lockheed Corporation and Martin Marietta in March 1995, is a global American corporation specializing in aerospace, defense, arms, information security, and technology. Headquartered in North Bethesda, Maryland, the company operates in four segments: Aeronautics, Missiles and Fire Control, Rotary and Mission Systems, and Space.
The U.S. Air Force Research Laboratory (AFRL) has granted Lockheed Martin Corporation a $33.7 million award under the Joint Emergent Technology Supplying On-Orbit Nuclear (JETSON) initiative. The goal of JETSON is to advance high-power nuclear electric power and propulsion technologies along with spacecraft design. The project involves launching a fission reactor that is activated once in space. The reactor will generate heat, transferred to Stirling power converters to produce electricity. This generated power can be utilized for spacecraft payloads or to power electric thrusters for propulsion.
According to Insider Monkey’s third quarter database, 60 hedge funds were long Lockheed Martin Corporation, compared to 52 funds in the earlier quarter. John Overdeck and David Siegel’s Two Sigma Advisors is the largest stakeholder of the company, with 895,100 shares worth $366.06 million.
4. United Parcel Service, Inc. (NYSE:UPS)
Number of Hedge Fund Holders: 47
Latest TTM Net Income: $8.56 billion
Established in 1907, United Parcel Service, Inc. (NYSE:UPS) originated as the American Messenger Company with a focus on telegraphs. Over time, it has evolved into a Fortune 500 company and is now one of the largest shipping couriers globally.
In early November, United Parcel Service, Inc. made an announcement confirming the successful completion of its acquisition of MNX Global Logistics, a leading global provider of time-critical logistics services. The transaction was finalized on November 2, 2023, after obtaining all necessary regulatory approvals. This strategic acquisition enhances UPS’s capacity for time-critical logistics, with a particular focus on serving healthcare customers across the United States, Europe, and Asia.
As of the close of Q3 2023, 42 hedge funds tracked by Insider Monkey owned stakes in United Parcel Service, Inc., compared with 47 in the previous quarter. The consolidated value of these stakes is more than $1.8 billion.
In its Q3 2023 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and United Parcel Service, Inc. was one of them. Here is what the fund said:
“A higher-for-longer rate mentality taking hold was a headwind for economically sensitive stocks. Rising wages have been one of the main drivers of inflation, and this has proved to be a sticky area, keeping the Fed’s attention and weighing on share prices. For example, United Parcel Service, Inc. renegotiated a wage increase for its union-backed workforce this summer, which weighed on margins that were already being constricted by slowing volumes. While the new union deal will dampen profits over the next 12 months due to the front-end-loaded nature of the new five-year contract, management gained increased flexibility to deploy automation, which we think should further enhance UPS’s strong competitive position and provide a long-term tailwind to profitability.”
3. Caterpillar Inc. (NYSE:CAT)
Number of Hedge Fund Holders: 50
Latest TTM Net Income: $9.11 billion
Caterpillar Inc. (NYSE:CAT), commonly referred to as CAT, stands as a leading American manufacturer specializing in construction, mining, and various engineering equipment. Recognized as the largest manufacturer of construction equipment globally, the company holds a prominent position in the industry.
On November 8, Tigress Financial, an investment advisory, affirmed a Buy rating on Caterpillar Inc. stock and increased the price target to $295 from $282. The analysis highlighted the company’s favorable position to capitalize on the global expansion in the construction sector.
As of the conclusion of the third quarter of 2023, Insider Monkey’s database revealed that 50 hedge funds held positions valued at $4.8 billion in Caterpillar Inc.. This figure remained consistent with the previous quarter, where the stakes were valued at $2.5 billion.
2. Deere & Company (NYSE:DE)
Number of Hedge Fund Holders: 55
Latest TTM Net Income: $10.17 billion
Deere & Company, operating under the trade name John Deere, is an American corporation that produces agricultural machinery, heavy equipment, forestry machinery, diesel engines, drivetrains for heavy equipment, and lawn care equipment. The company also offers financial services and engages in other related activities.
The company reported quarterly earnings of $8.26 per share, up from $7.44 per share a year ago, after adjusting for non-recurring items. This result marks an earnings surprise of 10.28%. In the previous quarter, analysts anticipated earnings of $8.14 per share, but Deere & Company exceeded expectations with earnings of $10.20 per share, representing a surprise of 25.31%. Over the last four quarters, the company has consistently outperformed consensus EPS estimates.
During September 2023, 55 out of the 910 hedge funds profiled by Insider Monkey were the firm’s shareholders. Deere & Company’s biggest hedge fund investor is Michael Larson’s Bill & Melinda Gates Foundation Trust as it owns $1.4 billion worth of shares.
1. General Electric Company (NYSE:GE)
Number of Hedge Fund Holders: 76
Latest TTM Net Income: $10.59 billion
Founded in 1892 and headquartered in Boston, General Electric Company is a leading American multinational conglomerate. The company operates in diverse sectors, including aerospace, power, renewable energy, digital industry, additive manufacturing, and venture capital and finance.
On October 24, 2023, General Electric Company released its third-quarter results for the period ending September 30. The company showcased notable growth in top-line, operating profit, and cash, resulting in an upward revision of the 2023 guidance. In addition, its reported total orders amounted to $17.9 billion, reflecting a 19% year-over-year increase, with organic orders experiencing an 18% uptick. Total revenues (GAAP) for the quarter reached $17.3 billion, marking a 20% year-over-year increase, while adjusted revenues stood at $16.5 billion, indicating an 18% organic rise.
In the third quarter, 76 hedge funds had a stake worth nearly $10.35 billion in General Electric Company. In the previous quarter, the company was a part of 71 hedge fund portfolios with a combined stake of $10.19 billion. The most prominent stake in Q3 was held by Chris Hohn’s TCI Fund Management with 41.65 million General Electric Company shares worth $4.6 billion.
Here is what Longleaf Partners Fund said about General Electric Company in its Q3 2023 investor letter:
“After a busy first half of the year, we initiated one new position in the quarter in a business we have successfully owned previously and were able to buy again at a discount within a new corporate structure. We opportunistically trimmed and added to several positions throughout the quarter, and we exited General Electric Company and our small position in Hasbro after the share price ran away from us. GE was a multi-year portfolio holding for us that started out rocky but ultimately was a good illustration of owning a “quality” business that was temporarily viewed as “value” (aka, perceived as low quality) before ultimately being weighed properly by the market. CEO Larry Culp was a great partner, creating significant value for shareholders and closing the price-to-value gap. Under his leadership, GE materially improved its operations and is well under way on plans to simplify the business by separating it into three world-class companies. The market has finally caught up with reality versus perception and is pricing GE accordingly. Unfortunately, this means we no longer see a margin of safety for the business but will continue to watch GE and Culp closely and hope to have the opportunity to partner with him again.”
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This article is originally published at Insider Monkey.
