Analysts have identified buying opportunities in these industrial stocks.
Investors had high hopes for the industrial sector coming into 2022 as the U.S. economy continues to recover from the pandemic. However, high inflation, rising interest rates and ongoing supply chain disruptions have weighed on the industrial sector so far this year. The Industrial Select Sector SPDR ETF (ticker: XLI) was down 2.9% year to date as of March 21. Travel-related industries have been hit particularly hard by the conflict between Russia and Ukraine, while many aerospace and defense stocks have outperformed. Here are 10 of the best industrial stocks to buy and hold in 2022, according to Morningstar analysts.
Honeywell International Inc. (HON)
Honeywell is an industrial conglomerate that specializes in aviation, building automation, industrial process automation and other industrial materials and equipment. Analyst Joshua Aguilar says Honeywell is an attractive value stock with multiple growth vectors. He says a slowdown in N95 mask demand may weigh on safety and productivity solutions growth in the near term, but the segment will still be the biggest contributor to Honeywell’s long-term growth. Aguilar predicts that Honeywell’s five-year compound annual revenue growth rate will be in at least the mid-single-digit percentage range. Morningstar has a “buy” rating and a $230 fair value estimate for HON stock, which closed at $193.02 on March 21.
Boeing Co. (BA)
Boeing is one of the world’s largest producers of commercial airplanes and one of the biggest U.S. defense contractors. Boeing’s narrow-body airplane business took a hit from the extended grounding of its 737 Max passenger aircraft, but analyst Burkett Huey says demand from emerging market economies will continue to serve as a long-term tail wind for narrow-body growth. He says geopolitical relations between the U.S. and China remain critical, given that Boeing projects about 25% of global aviation demand growth in the next decade will come from China. Morningstar has a “buy” rating and a $249 fair value estimate for BA stock, which closed at $185.90 on March 21.
General Electric Co. (GE)
General Electric is an industrial conglomerate that specializes in jet engines, gas and wind turbines, and medical scanning and imaging equipment. GE shares are down about 9% in the past year, but Aguilar says the market is missing the GE opportunity. Despite noisy financials and declining revenue, he says GE’s long-term fundamental outlook has been steadily improving. The company has strong order and backlog growth, which Aguilar says bodes well for future revenue growth. Planned spinoffs of GE’s health care and energy businesses could also be bullish catalysts. Morningstar has a “buy” rating and a $133 fair value estimate for GE stock, which closed at $94.82 on March 21.
3M Co. (MMM)
3M is a diversified industrial, health care and consumer product manufacturer. Aguilar says 3M shares trade at discounted valuation as the company navigates litigation uncertainty related to lawsuits alleging that 3M sold the U.S. military defective combat earplugs. He says the stock’s 4% dividend is attractive and safe due to the company’s strong balance sheet and commitment to capital returns. Aguilar projects 6% annual dividend growth over the next five years and says only the company’s share buybacks would be temporarily disrupted by a worst-case litigation outcome. Morningstar has a “buy” rating and a $192 fair value estimate for MMM stock, which closed at $148.58 on March 21.
FedEx Corp. (FDX)
FedEx provides global express and ground package delivery, truck freight and logistics services. Analyst Matthew Young says labor shortages are pressuring FedEx ground margins, but underlying demand remains robust. Young says FedEx has leveraged its speed advantage over primary competitor United Parcel Service Inc. (UPS) to improve its U.S. ground market position over the past decade. He says ground margins should improve in coming quarters. E-commerce tail winds should also continue to drive delivery growth for years to come, even as Amazon.com Inc. (AMZN) insources last-mile package deliveries. Morningstar has a “buy” rating and a $258 fair value estimate for FDX stock, which closed at $222.16 on March 21.
Emerson Electric Co. (EMR)
Emerson Electric is a diversified global industrial technology company. Aguilar says Emerson got off to a strong start to its fiscal year, reporting 7.5% year-over-year revenue growth and 13% earnings-per-share growth in the first quarter. He says Emerson’s tool, commercial/industrial and automotive-related markets should be particularly strong growth sources in the coming year. Aguilar says automation will be one of the most important investments that manufacturers can make in the next several years, and Emerson is well positioned to capitalize on that trend. Morningstar has a “buy” rating and a $113 fair value estimate for EMR stock, which closed at $98.20 on March 21.
Parker-Hannifin Corp. (PH)
Parker-Hannifin produces industrial motion and control technologies, including pneumatic, hydraulic, and vacuum systems. Aguilar says management was confident enough to recently raise guidance even in the face of supply chain disruptions and inflationary headwinds. He says Parker-Hannifin’s diversified industrial segment produced particularly impressive top-line growth in the most recent quarter, generating 15% organic revenue growth in North America and 14% growth international markets. The company has intellectual property protection on about 85% of revenue generated from motion and control technologies, which Aguilar says helps protect Parker-Hannifin’s competitive position. Morningstar has a “buy” rating and a $325 fair value estimate for PH stock, which closed at $288.53 on March 21.
Cummins Inc. (CMI)
Cummins is a leading manufacturer of truck engines, standby power equipment and industrial filters. Cummins recently guided for diesel engine sales of between $33 billion and $35 billion in 2030, and analyst Dawit Woldemariam says that target is certainly achievable for a high-quality supplier like Cummins. Woldemariam says emissions standards will drive truck manufacturers to shift away from in-house engine production, leading to market share gains for Cummins. He is impressed by Cummins’ ability to both invest in next-generation technology and improve emissions of existing diesel products. Morningstar has a “buy” rating and a $240 fair value estimate for CMI stock, which closed at $206.15 on March 21.
Equifax Inc. (EFX)
Equifax provides consumer data and analytics to businesses for lending, marketing and other applications. Analyst Rajiv Bhatia says rising mortgage rates are a headwind for Equifax’s mortgage business, and the company is now guiding for a 21.5% drop in mortgage inquiries in 2022. Bhatia says Equifax Workforce Solutions, or EWS, is the star of Equifax’s business, generating 17% organic revenue growth in the most recent quarter. Mortgage credit inquiries dropped 21% last quarter, but EWS mortgage revenues were up 6% thanks to the segment’s strong fundamentals. Morningstar has a “buy” rating and a $340 fair value estimate for EFX stock, which closed at $237.84 on March 21.
Southwest Airlines Co. (LUV)
Since mid-2021, Southwest Airlines hasn’t been quite the pandemic recovery play investors had hoped it would be. Holiday travel was hurt by outbreaks of the omicron variant of COVID-19, and the recent spike in oil prices has weighed on airline stocks. Huey says Southwest did an impressive job of passing on higher costs to its customers in the fourth quarter. He expects airlines will eventually recover to full pre-pandemic capacity, including at least an 80% recovery in business travel, which has been hit particularly hard. Morningstar has a “buy” rating and a $65 fair value estimate for LUV stock, which closed at $42.78 on March 21.
10 best industrial stocks to buy in 2022:
— Honeywell International Inc. (HON)
— Boeing Co. (BA)
— General Electric Co. (GE)
— 3M Co. (MMM)
— FedEx Corp. (FDX)
— Emerson Electric Co. (EMR)
— Parker-Hannifin Corp. (PH)
— Cummins Inc. (CMI)
— Equifax Inc. (EFX)
— Southwest Airlines Co. (LUV)
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10 Best Industrial Stocks to Buy in 2022 originally appeared on usnews.com
