5 best industrial stocks for the rest of 2021

As the global economy continues to rebound, this list of industrial stocks could benefit.

  • By David Cohne,
  • Kiplinger
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The ongoing economic recovery from the pandemic means that we are very much in the expansion stage of the business cycle. This is a positive for industrial companies and industrial stocks that thrive in this market environment.

The prospects for infrastructure spending and green energy investing should likewise give support to the industry.

Add it all up, and these twin tailwinds of rising global output and higher capital expenditures should boost revenue for a wide range of industrial firms.

For example, factory output is increasing at a faster pace than expected. The Federal Reserve stated on June 15 that industrial production grew 0.8% year-over-year in May. This surpassed economists' expectations for 0.6% growth and followed a slight increase of 0.1% in April.

Since industrial companies serve as the backbone of the economy, this bodes well for their bottom lines and their share prices.

With this momentum expected to continue through the rest of 2021, here's a list of five industrial stocks to consider going forward.

To curate this list, we used the Stock News POWR Ratings system to identify the best industrial stocks based on the model's fundamental checks.

Data is as of June 24. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price. POWR Ratings work on an A-B-C-D-F system.

Caterpillar

  • Market value: $120.2 billion
  • Dividend yield: 2.0%
  • POWR Ratings overall rating: B (Buy)
  • POWR Ratings average broker rating: 1.8

Caterpillar (CAT) is a well-known manufacturer of heavy equipment, power solutions and locomotives. It is currently the world's largest heavy equipment manufacturer, with a more than 15% market share in 2020. The company is considered a bellwether of the economy as it serves so many industries, including infrastructure, construction, mining, oil and gas and transportation.

As far as industrial stocks go, this one has been benefiting from an improving economy. CAT saw better-than-expected end-user demand in the most recent quarter, resulting in year-over-year growth in earnings and revenues after four declining quarters. The recent pickup in industrial activity is expected to drive revenue growth in upcoming quarters.

For example, ongoing strength in North American residential activity should increase demand for the company's construction equipment. CAT could also benefit from increased government spending in China on infrastructure and building activity.

Furthermore, a continued recovery in crude futures will likely boost oil and gas capital expenditures, resulting in more engine, transmission and pump sales for CAT. The company also has a healthy balance sheet with a current ratio of 1.6, meaning it has more assets than liabilities at the moment.

Caterpillar has an overall grade of B, translating into a Buy rating in the POWR Ratings system. CAT has a Growth Grade of B, partly driven by forecasted year-over-year earnings growth of 131.1% for the current quarter and 66.4% next quarter – compared to average earnings growth of 26.5% over the past five years. Sales are expected to rise 25.9% this quarter and 21.4% in the next one.

CAT is ranked #32 in the A-rated Industrial – Machinery industry.

Deere & Company

  • Market value: $109.4 billion
  • Dividend yield: 1.1%
  • POWR Ratings overall rating: B (Buy)
  • POWR Ratings average broker rating: 1.58

You can't have a list of best industrial stocks without having Deere & Company (DE) on it.

The company is the world's top manufacturer of agricultural equipment, and has a leading market share in multiple large farm equipment segments. Its three main areas are agriculture and turf, construction and forestry, and credit. Its products are available through a robust network, which includes over 1,900 dealer locations in North America and approximately 3,700 locations globally.

Deere is benefiting from higher crop prices, which incentivize farmers to grow more – leading to increased demand for farming equipment. This helps boost DE's revenue growth. The company is also benefiting from a strong replacement bid. As uncertainty over trade and agricultural commodity demand has faded, farmers are looking to update their machines.

Increased infrastructure spending in the U.S. and emerging markets should lead to more construction equipment purchases, directly benefiting the company. DE has grown earnings an average of 11.8% over the past five years, with analysts forecasting 75.5% year-over-year improvement in the current quarter. Deere is also highly efficient, with a return on equity of 34.0%

DE has an overall grade of B, which is a Buy Rating in our POWR Ratings system. It also has a Sentiment Grade of B, which means analysts love the stock. Fifteen out of 24 analysts have a Buy or Strong Buy rating on DE. Plus, the stock has a potential upside of 17% based on an aggregate of analyst estimates.

Deere is ranked #25 in the A-rated Industrial industry.

Corning

  • Market value: $34.9 billion
  • Dividend yield: 2.3%
  • POWR Ratings overall rating: B (Buy)
  • POWR Ratings average broker rating:1.46

Corning (GLW) is a leader in materials science, specializing in the production of glass, ceramics and optical fiber. The company supplies its products for a wide range of applications. This includes flat-panel displays in televisions, gasoline particulate filters in automobiles and optical fiber for broadband access, and GLW has a leading share in many of its end markets.

The company dominates the smartphone cover glass market and works with network carriers to supply fiber for 5G network buildouts. GLW is also benefiting from its ceramic substrates and gasoline particulate filters in the automotive market. Plus, Corning is a leader in the thin display glass market for 65" and 75" TV screens, and its Valor Glass is a disrupter in the pharmaceutical market.

GLW has an overall grade of B and a Buy rating in our POWR Ratings service. It also has a Growth Grade of B, which makes sense given its forecasted growth this year. Revenue is expected to rise 19.8% year-over-year in fiscal 2021, with earnings projected to soar 51.1% over the same period. Additionally, analysts forecast a whopping 104% growth in earnings for the quarter, when compared to the year prior.

Corning is fundamentally sound as far as industrial stocks are concerned, as evidenced by its Quality Grade of B. The company had $2.9 billion in cash in the most recently reported quarter. This compared favorably with only $154 million in short-term debt. GLW also has a debt-to-equity ratio of 0.6.

GLW is ranked #15 in the A-rated Industrial – Manufacturing industry.

Johnson Controls International

  • Market value: $47.7 billion
  • Dividend yield: 1.6%
  • POWR Ratings overall rating: B (Buy)
  • POWR Ratings average broker rating: 1.63

Johnson Controls International (JCI) offers building management solutions, through the manufacturing, installation and servicing of heating, ventilation and air conditioning (HVAC) systems, industrial refrigeration units and fire and security products. Its operations also include creating intelligent buildings, which provide efficient energy alternatives and integrated infrastructure.

Through its OpenBlue digital platform, JCI uses technology to make shared spaces in buildings safer and more sustainable. Johnson Controls should see accelerated growth over the long term as it scales up this recently launched platform. As CEO George Oliver noted in the company's most recent earnings call, "The market opportunity continues to grow. We originally sized it at $10 billion to $15 billion, and that continues to increase."

The company is also expected to grow through the 150 new product launches it has planned fiscal 2021, which is forecast to boost its revenue pipeline. As momentum in residential construction and secular growth in smart buildings and smart cities continues, Johnson Controls should benefit from a recovery in commercial HVAC and fire and security products.

JCI has an overall grade of B, translating into a Buy rating in our POWR Ratings system. The company has a Growth Grade of B. In its most recent quarter, this growth was evident in the company's 24% year-over-year rise in adjusted earnings per share (EPS). For the quarter quarter, expectations are for EPS to improve 23.9% from the year prior, and be up 17.9% in fiscal 2021.

Analysts forecast earnings to rise 23.9% year over year in the current quarter. JCI also has a Sentiment Grade of B as it is well-liked by the "smart crowd." Several analysts have JCI ranked as one of the best industrial stocks, too, with 11 of 13 calling it a Buy or Strong Buy.

Johnson Controls is ranked #26 in the A-rated Industrial – Building Materials industry.

Emerson Electric

  • Market value: $57.2 billion
  • Dividend yield: 2.1%
  • POWR Ratings overall rating: B (Buy)
  • POWR Ratings average broker rating: 1.62

Not only is Emerson Electric (EMR) a member of the Kiplinger Dividend 15, but it's also one of the best industrial stocks to watch for the rest of 2021.

The company is a multi-industrial conglomerate that operates under two business platforms: automation solutions, and commercial and residential solutions. The former segment is known for process management solutions, such as control valves, transmitters and automation systems. This arm is seeing strong growth in China, with sales up 42% in the fiscal second quarter.

EMR's commercial and residential solutions segment focuses on climate technologies, such as HVAC and refrigeration products and services. Some of the home products it creates include the InSinkErator garbage disposal and the Sensi thermostat.

The company is projecting annual revenue growth of 12% to 14% in its commercial and residential division for fiscal 2021, and said in its most recent earnings call that the backlog in this segment has jumped 60% for the year-to-date to about $1 billion (roughly $400 million more than what it considers "normal").

Emerson Electric has an overall grade of B or a Buy Rating in our POWR Ratings system. It also has a Stability Grade of B, which means both its price returns and growth figures are stable.

The company has a Quality Grade of B, which means it has a solid balance sheet – as evidenced by its strong cash flows. At the end of its fiscal second quarter, the company had $807 million in operating cash flow, a 37% year-over-year increase. EMR also has a gross margin of 41.5%, which is well below the industry average.

EMR is ranked #18 in the B-rated Industrial – Equipment industry.

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© 2021 The Kiplinger Washington Editors, Inc.
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