Five Capital Goods Stocks to Buy Now

With the U.S. economy strong, many capital goods stocks have done very well year-to-date. Not only are profits at a record high for many companies, but also the future has never looked so rosy.

In this article, we take a closer look at five particular capital goods stocks, General Motors Company (NYSE:GM), Thermo Fisher Scientific Inc. (NYSE:TMO), United Technologies Corporation (NYSE:UTX), Danaher Corporation (NYSE:DHR), and General Dynamics Corporation (NYSE:GD), which ranked as the most popular among the investors we track at Insider Monkey.

At Insider Monkey, we track around 750 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on, can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see the details here).

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#5 General Dynamics Corporation (NYSE:GD)

– Number of Hedge Fund Holders (as of June 30): 51
– Total Value of Hedge Fund Holdings (as of June 30): $6.57 billion
– Hedge Fund Holdings as Percent of Float (as of June 30): 15.40%

Hedge funds were optimistic on General Dynamics in the second quarter. Of the around 750 funds we track, 51 investors had a bullish position in General Dynamics Corporation (NYSE:GD) at the end of June, up by eight from the previous quarter. Among these 51 funds, James A. Star‘s Longview Asset Management was perhaps the most bullish. A whopping 88.52% of Longview’s equity portfolio, or $4.6 billion, was held in General Dynamics stock at the end of June. Although General Dynamics’ shares have already rallied  by 12% year-to-date, analysts believe there is more upside to come. Analysts at Bernstein have recently upgraded General Dynamics to ‘Outperform’ from ‘Market Perform’ and hiked its price target to $180 per share, citing the stock’s considerable discount versus other defense companies.

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#4 Danaher Corporation (NYSE:DHR)

– Number of Hedge Fund Holders (as of June 30): 54
– Total Value of Hedge Fund Holdings (as of June 30): $2.36 billion
– Hedge Fund Holdings as Percent of Float (as of June 30): 3.40%

Shortly after spinning off the Test & Measurement/industrials-focused Fortive Corporation on July 2, Danaher Corporation (NYSE:DHR) reported better-than-expected earnings for for its second quarter, with EPS of $1.25 on revenue of $5.79 billion (up by 16.7% year-over-year). The results beat the average estimates by $0.03 per share on the bottom line and $30 million on the top-line. For the full year, Danaher’s management expects diluted EPS of $3.53 to $3.60. The number of funds from our database long Danaher Corporation went up by eight to 54 during the second quarter.

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#3 United Technologies Corporation (NYSE:UTX)

– Number of Hedge Fund Holders (as of June 30): 56
– Total Value of Hedge Fund Holdings (as of June 30): $3.89 billion
– Hedge Fund Holdings as Percent of Float (as of June 30): 4.50%

A total of 56 funds from our database owned shares of United Technologies Corporation (NYSE:UTX) at the end of the second quarter, up by five from the end of the first quarter. Hedge funds like United Technologies (UTX) because it is one of the largest, most diversified industrial conglomerates in the world. In 2015, the company reported sales of $56.1 billion, a number larger than the annual GDP of some small countries, selling everything from Otis elevators to climate control systems to military and commercial engines. United Technologies’ broad and diverse portfolio of essential industrial products reduces its risk to the business cycle. When everything seemed to go wrong in 2008 and 2009, United Technologies still reported EPS of $4.90 and $4.12, respectively, more than enough to cover its dividend by several multiples at the time. United Technologies’ large size also provides it with substantial economies of scale that competitors have a difficult time emulating. 

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#2 Thermo Fisher Scientific Inc. (NYSE:TMO)

– Number of Hedge Fund Holders (as of June 30): 57
– Total Value of Hedge Fund Holdings (as of June 30): $2.79 billion
– Hedge Fund Holdings as Percent of Float (as of June 30): 4.80%

The smart money is bullish on Thermo Fisher Scientific Inc. (NYSE:TMO). According to our data, the number of elite funds with holdings in Thermo Fisher Scientific Inc. (NYSE:TMO) rose by seven quarter-over-quarter to 57 at the end of June. Analysts are also bullish. Of the 16 analysts covering the stock, 15 have ‘Buy’ ratings and only one analyst has a ‘Hold’ rating. Most recently, Citigroup analysts maintained their ‘Buy’ rating on July 29 and raised their price target to $182 from $160.

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#1 General Motors Company (NYSE:GM)

– Number of Hedge Fund Holders (as of June 30): 65
– Total Value of Hedge Fund Holdings (as of June 30): $3.3 billion
– Hedge Fund Holdings as Percent of Float (as of June 30): 7.50%

General Motors Company (NYSE:GM) has the opportunity to tackle the coming vehicle disruption problem head-on. After making a $500 million investment in ride sharing app Lyft in January and committing to testing self-driving Chevrolet Bolt EVs with Lyft within a year, GM has an opportunity to buy all of Lyft, which has recently decided to shop itself for $10 billion or less. If GM buys Lyft, or if it successfully adjusts to the autonomous driving ride-sharing age, its current forward P/E multiple of 5.4 will likely increase. Warren Buffett’s Berkshire Hathaway owned 50 million shares of General Motors Company at the end of the second quarter.

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Disclosure: none