What are industrial stocks?

What are industrial stocks?

Beginner

1st September, 10:14
Updated: 23rd September, 07:20

Looking for stocks of companies that help build infrastructure around the world?

Check out what industrial stocks have to offer. In this lesson, we’ll explain what industrial stocks are, what their typical characteristics are, and where to find more information about them. We’ve also prepared a list of industrial stocks that sport remarkable recent price performance, strong fundamentals, or both. 

What are industrial stocks?

Industrial stocks are stocks of companies that produce and/or distribute machinery, equipment, and supplies used in the construction, manufacturing, and defense industries. Various stock indices in the world, such as the Dow Jones Industrial Average are populated with some of the biggest industrial stocks.

Why do investors look for industrial stocks?

Because we will always need to build and maintain infrastructure. Granted, the steamrollers and bulldozers of today might be replaced by more modern, self-propelled vehicles and machinery in the future. But no matter how technology evolves, machines used for construction and manufacturing will always be in demand. 

What are the defining characteristics of industrial stocks?

1) They let you tap into the world of construction and machinery

The need for construction is never going to go away, and with industrial stocks you can be a part of it. Even though our everyday lives have become increasingly digital, human beings will always need homes, roads, and other vital buildings and infrastructure. 

2) They’re somewhat sensitive to economic conditions

When governments or businesses are strapped for cash due to recessions or bad fiscal decisions, they don’t usually rush out to execute gigantic construction projects. So keep an eye on the broader economy, as economic growth tends to lead to spikes in construction and manufacturing.

3) They’re also sensitive to bad news

Geopolitical strife, inability to ratify trade deals, and other related events can bog down growth for industrial companies, as these companies rely on a degree of certainty about the future. The more peaceful and cooperative the world is at any given time, the more likely it is for industrial stocks to flourish.

4) They rely heavily on the materials sector

Construction and manufacturing equipment often require basic materials to function. That means that industrial stocks and materials stocks often move in the same direction, based on the state of the broader economy. For this reason, the lesson after this one will focus on materials stocks.

Here are some examples

If you’re considering investing in industrial stocks, here are four companies it is worth considering adding to your portfolio.

1) Johnson Controls (JCI)

The Irish producer of HVAC, security, and fire equipment for buildings saw its stock vault 56% from its March 2020 low to its new level in early June. Despite that runup, the stock maintains a small 5.7-to-1 price-to-earnings ratio.

2) Rockwell Automation (ROK)

This provider of industrial automation technology reported revenue of $6.7 billion in 2019. Rockwell’s stock vaulted to an all-time high in June 2020, and with automation being one of the key words related to big industry today, companies like Rockwell Automation are well set to keep performing strongly.

3) Caterpillar (CAT)

Caterpillar’s stock is hoping to continue its recent good performance, having jumped more than 50% from its March 2020 low to its level in early June. The world’s largest construction equipment manufacturer is a component of the Dow Jones Industrial Average, and sports a 3.1% dividend yield.

4) United Rentals (URI)

The world’s largest construction equipment rental company, United Rentals, controls $14 billion in equipment. After bottoming out in late March 2020, the stock rocketed more than twofold over the next 10 weeks when the economy started to recover.

How do I find industrial stocks?

Investment websites such as MarketWatch and Yahoo Finance offer screening tools to help you find the best industrial stocks, based on parameters such as earnings growth and revenue growth. Then again, you don’t need to touch that dial, because we offer monthly lists of industrial stocks right here at Invezz.com.

Visit this guide for more information on how to find industrial stocks > 

Now you have a better understanding of industrial stocks, continue onto our next lesson about materials stocks, which are heavily related to industrial stocks.

By Jonah Keri
Jonah Keri is a trader and analyst who spent 11 years at Investor's Business Daily covering the markets. He now writes about stocks, cryptocurrencies, and other investments for Invezz and about emerging technologies for private clients.
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