• Print
  • Default text size A
  • Larger text size A
  • Largest text size A
close

Links provided by Fidelity Brokerage Services

fidelity-fbs-iconThese links are provided by Fidelity Brokerage Services LLC ("FBS") for educational and informational purposes only. FBS is responsible for the information contained in the links. FICS and FBS are seperate but affiliated companies and FICS is not involved in the preparation or selection of these links, nor does it explicitly or implicitly endorse or approve information contained in the links.
close

Published by Fidelity Interactive Content Services

Content for this page, unless otherwise indicated with a Fidelity pyramid logo, is published or selected by Fidelity Interactive Content Services LLC ("FICS"), a Fidelity company with main offices in New York, New York. All Web pages that are published by FICS will contain this legend. FICS was established to present users with objective news, information, data and guidance on personal finance topics drawn from a diverse collection of sources including affiliated and non-affiliated financial services publications and FICS-created content. Content selected and published by FICS drawn from affiliated Fidelity companies is labeled as such. FICS selected content is not intended to provide tax, legal, insurance or investment advice and should not be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security by any Fidelity entity or any third-party. Quotes are delayed unless otherwise noted. FICS is owned by FMR LLC and is an affiliate of Fidelity Brokerage Services LLC. Terms of use for Third-Party Content and Research.

Industrial stocks in an improving economy

  • By Constance Gustke,
  • Bankrate.com
  • – 03/19/2014
  • Industrials Sector
  • Facebook.
  • Twitter.
  • LinkedIn.
  • Google Plus
Please enter a valid e-mail address
Please enter a valid e-mail address
Important legal information about the e-mail you will be sending. By using this service, you agree to input your real e-mail address and only send it to people you know. It is a violation of law in some jurisdictions to falsely identify yourself in an e-mail. All information you provide will be used by Fidelity solely for the purpose of sending the e-mail on your behalf.The subject line of the e-mail you send will be "Fidelity.com: "

Your e-mail has been sent.

Producing concrete, construction equipment and rock salt sounds mundane. But investing in these companies can cement gains for investors who can stomach cyclical stocks.

Because some industrial firms involved in transportation, construction and steel have staked out special, capital-intensive niches, they face less competition. So, they fare well when the economy is cranking ahead. Industrial stocks even outperformed buzz-worthy sectors such as real estate and communications last year, according to independent investment research company Morningstar.

More investing ideas

Need more inspiration? The financial journalists at Fidelity Interactive Content Services can help.

However, many industrial stocks are still selling at reasonable valuations in a pricey stock market, says David Ott, a partner at Acropolis Investment Management LLC in Chesterfield, Mo.

Despite these plusses, industrial stocks aren't for everyone. They're highly cyclical, says Patrick Hejlik, the CEO of Fourth Quadrant Asset Management in Danville, Calif. They move up with the market and can quickly come down, he says.

For investors with cast-iron stomachs, here are four industrial stock sectors to consider. Before investing in industrial stocks, you should consult with your investment adviser and do your homework.

Transportation

Railroad companies are great because railroads are too expensive to build today, Ott says. And each railroad line has staked out a different region, giving it a monopoly, he says.

Warren Buffett explained his company's purchase of BNSF Railway Corp. of Fort Worth, Texas, in 2009 by saying, "It's an all-in wager on the economic future of the United States. I love these bets."

Hejlik also likes railroad stocks as an investment. "They're more efficient than trucking, and they're also environmentally friendly," he says.

For example, Union Pacific Corp. (UNP) of Omaha, Neb., keeps improving its operational efficiency and is cranking out strong profits. Year over year, Union Pacific had net income of $4.4 billion for 2013, compared with $3.9 billion for 2012. The railroad connects busy Pacific ports with Midwestern and Eastern rail hubs.

"Union Pacific also transports less coal than some other railroads," Hejlik says. That's important because coal use continues to decline.

Construction

North American construction is strong, says Adam Fleck, a certified financial adviser and associate director of Morningstar. "That gives these stocks a good tail wind," he says. And though construction stocks already have performed well, there's still opportunity for investors.

For example, Caterpillar Inc. (CAT) of Peoria, Ill., which makes mining and construction equipment as well as engines, is a highly cyclical stock. But these days, Caterpillar's construction industries segment is performing well in North America and South America and is notching more construction projects, Fleck says.

In North America, construction demand should stay strong, too, since there's low residential housing inventory, Fleck says. Caterpillar's revenue will rise to mid- to high-single-digit growth next year, he says. And, it has a 2.5 percent dividend yield, which is higher than the 1.9 percent average yield of the Standard & Poor's 500 index (.SPX).

Even stocks for smaller construction equipment companies might improve as real estate comes back as a business sector.

Hejlik also likes global construction companies. They have big business backlogs because they build emerging country infrastructure like pipelines, he says.

Basic materials

Demand for some basic materials like seeds, fertilizer and iron ore is translating into a bright near-term future, says Elizabeth Collins, director of basic materials research at Morningstar.

For example, farmers are currently rebuilding depleted seed stashes. So, Collins forecasts a good season for seed companies. As a result, Monsanto Co. of St. Louis, which sells its patented seeds in 150 countries, is a possible stock play. "Patents give Monsanto a competitive advantage," she says.

Compass Minerals International Inc. (CMP) of Overland Park, Kan., which makes salt for de-icing roads and specialty fertilizer, is another example of a company that is prominent in its niche: highway de-icing salt. Its Canadian rock salt mine is the world's largest, Morningstar's Collins says. Also, company earnings should grow over the long term as it expands its specialty fertilizer production. The current dividend yield is 2.8 percent.

In addition, Collins says companies that make building materials such as concrete, asphalt and the like could benefit as U.S. construction rebounds. "Earnings should start to grow because commercial construction is picking up," she says.

Steel

Steel isn't a good place for investors right now, says Bridget Freas, director of investor relations at Coeur d'Alene Mines Corp. and a former Morningstar senior analyst covering the steel and aluminum sectors. The European market is soft and Chinese demand for steel probably will slow in the next few years. Most steel companies aren't making much money, and things could get worse, Freas says. However, in three to five years, steel companies' earnings should be stronger.

For example, Steel Dynamics Inc. (STLD) of Fort Wayne, Ind., a small newcomer, makes a wide range of steel products for automotive and construction companies and the like. The company has a dividend yield of 2.5 percent, and it raised its quarterly dividend to 11 cents per share last year.

Also take a look at large North American steel producers, Freas says. Some have solid balance sheets, with lots of cash, low debt and decent yields. These large producers are set to benefit when steel prices rebound.

  • Facebook.
  • Twitter.
  • LinkedIn.
  • Google Plus
Please enter a valid e-mail address
Please enter a valid e-mail address
Important legal information about the e-mail you will be sending. By using this service, you agree to input your real e-mail address and only send it to people you know. It is a violation of law in some jurisdictions to falsely identify yourself in an e-mail. All information you provide will be used by Fidelity solely for the purpose of sending the e-mail on your behalf.The subject line of the e-mail you send will be "Fidelity.com: "

Your e-mail has been sent.
© Copyright 2014 Bankrate, Inc. All rights reserved.
Votes are submitted voluntarily by individuals and reflect their own opinion of the article's helpfulness. A percentage value for helpfulness will display once a sufficient number of votes have been submitted.
Content for this page, unless otherwise indicated with a Fidelity pyramid logo, is published or selected by Fidelity Interactive Content Services LLC ("FICS"), a Fidelity company with main offices in New York, New York. All Web pages that are published by FICS will contain this legend. FICS was established to present users with objective news, information, data and guidance on personal finance topics drawn from a diverse collection of sources including affiliated and non-affiliated financial services publications and FICS-created content. Content selected and published by FICS drawn from affiliated Fidelity companies is labeled as such. FICS selected content is not intended to provide tax, legal, insurance or investment advice and should not be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security by any Fidelity entity or any third-party. Quotes are delayed unless otherwise noted. FICS is owned by FMR LLC and is an affiliate of Fidelity Brokerage Services LLC. Terms of use for Third-Party Content and Research.
fidelity-fbs-iconThese links are provided by Fidelity Brokerage Services LLC ("FBS") for educational and informational purposes only. FBS is responsible for the information contained in the links. FICS and FBS are seperate but affiliated companies and FICS is not involved in the preparation or selection of these links, nor does it explicitly or implicitly endorse or approve information contained in the links.
Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information.  Read it carefully.