10 Industrial Stocks Poised for a Rebound
It's in this phase that long-term investors might consider stocks of their suppliers. Those are the unsung companies that provide the machine tools, parts and components that manufacturers need to produce heavy machinery, trucks, bulldozers and aircraft in anticipation that this highly cyclical industry will finally bloom again.
That's likely already in process as key industrial sector signals have been positive recently. For example, the Institute for Supply Management's March factory survey found that new orders and backlogs were still growing last month and their inventories of unsold goods weren't building, which means that any increase in demand will have to come from new production by the manufacturers.
As a result, their needs will trickle down to orders for suppliers.
What's more the Federal Reserve reported that first-quarter factory output to rise at a hefty annual rate of 10.4% and that manufacturing output moved up at an annual rate of 8.3%.
Standard & Poor's says its outlook for the industrial machinery industry remains "positive, based on various industrial activity metrics that indicate manufacturing and machinery usage continue to expand, and our belief that stronger growth in emerging economies will likely drive the rebound in global markets."
But on a cautious note, S&P Capital IQ analyst Kevin Kirkeby said in a recent report that the industrial-machinery sector, which has been resurgent since 2010 helped by worldwide stimulus spending programs and other measures aimed at freeing up the capital markets, slowed in the first quarter due to "increased risk aversion" by companies considering new orders of capital equipment. Their concerns were over the resolution of the sovereign debt crisis in Europe and signs of slowing economic growth in China.
As of April 13, S&P's industrial machinery stock index was up 12.4%, versus the S&P 500's 9% gain.
Here are 10 stocks of companies that are suppliers to the industrial-machinery sector ranked in inverse order of the number of analyst "buy" signals:
Company profile: Sandvik, with a market value of $17 billion, is an international producer of highly engineered tools and products for the global industrial market. It has five business areas: mining, machining tools, materials technology, construction, and venture.
Dividend Yield: 2.34%
Investor takeaway: Its shares are up 12.3% this year and have a three-year, average annual return of 27%. The Sweden-based company doesn't get U.S. analyst coverage.
Company profile: Dover, with a market value of $11 billion, is an industrial conglomerate consisting of nearly 40 separate businesses. It has four segments: industrial products, engineered systems, fluid management, and electronic technologies.
Dividend Yield: 2.06%
Investor takeaway: Its shares are up 5.7% this year and have a three-year, average annual return of 26%. Analysts give its shares four "buy" ratings, four "buy/holds," four "holds," one "weak hold," and one "sell," according to a survey of analysts by S&P. Analysts expect it to earn $4.90 per share in its current fiscal year and that that will grow by 12% to $5.47 per share next year. S&P has it rated "buy" with a $72 price target, which is an 18% premium to its current price.