Scared of the Changing Market Conditions? Consider These Industrial Stocks!

While macroeconomic issues remain unresolved and the threat of a global recession in 2023 still lingers, it may appear that purchasing industrial stocks is not advisable right now.

Nevertheless, this uncertainty should not deter you from considering investment opportunities in this sector.

In fact, high uncertainties can present favorable opportunities for certain stocks!

Many cyclical industrial stocks are currently available at heavily discounted valuations, as their future prospects remain unclear.

In some cases, these stocks have been discounted excessively, creating a potentially attractive risk/reward proposition.

The industrial sector, which is often overlooked in favor of consumer-focused businesses and technology stocks, plays a crucial role in maintaining the smooth operation of the economy.

Essentially, this sector is made up of companies that primarily assist other businesses in manufacturing and shipping their products, generating the majority of their revenue from these activities.

With the resurgence in travel demand, a decrease in inflation, and an increase in infrastructure spending, industrial stocks are in a good position for a swift recovery.

In 2023, the top industrial stocks to invest in will possess the resilience needed to weather any potential economic downturns.

And if you’re seeking fresh investment ideas for the rest of the year, then industrial stocks are undoubtedly an exciting option!

This week, I present to you these stocks that will make you feel safe, and are well-positioned to benefit from market conditions that are slowly getting better and better.

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Caterpillar

With Caterpillar’s stock reaching a new all-time high last month, it can also be expected to resume its upward trend in the coming weeks, bolstered by the company’s anticipated strong growth in profits and sales.

As one of the thirty members of the Dow Jones Industrial Average, the industrial giant has already gained almost 10% year-to-date, due to positive sentiment around the global economy’s durability.

Caterpillar Inc. has recorded revenue and earnings growth for six consecutive quarters, thanks to its effective cost-saving measures, strong demand for its products, and pricing strategies that counteracted the impact of supply-chain disruptions and cost pressures.

The Construction Industries sector is also expected to see a boost in demand, due to increased construction activities worldwide, including in the United States.

Furthermore, the Resource Industries segment is expected to benefit from the current surge in commodity demand, due to the energy-transition trend and the thriving mining industry. At the same time, Caterpillar’s dividend yield and payout ratio are higher than its competitors, making it an attractive investment opportunity.

Additionally, the company has a strong liquidity position and is investing in expanding its services, which are also positive indicators of its potential for future growth.

Moving forward, I expect that the company will offer optimistic projections for the remainder of the year, thanks to the advantageous combination of positive industry demand trends and strong pricing, particularly due to the encouraging forecast for the sales of construction and mining equipment.

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Lockheed Martin

I have covered LMT late last year, and my bull case remains mostly the same.

For many years, Lockheed Martin has been a prominent player in the defense industry, and has established itself as one of the biggest suppliers to the U.S. government and its allies.

Its product portfolio includes missiles, helicopters, satellite systems, fighter jets, and other equipment used by military organizations.

The company benefits from cost-plus contracts, which ensure a certain profit margin for contractors such as Lockheed Martin, and this has helped the company weather periods of rising wages and input costs, as is currently happening.

Furthermore, even if cost-plus contracting is phased out, Lockheed Martin has a virtual monopoly on several advanced weapons systems, such as the cutting-edge F-35 fighter jet, which suggests it will continue to be the dominant supplier to the U.S. government for many years to come, regardless of the contract structure.

Lockheed Martin’s business is highly stable and predictable, especially since governments, particularly the U.S. government, consistently demand the latest in defense and war technology.

In 2022, the company recorded $66 billion in sales and generated $6.1 billion in free cash flow.

The company’s management utilizes this steady cash flow to return value to shareholders through dividends and share buybacks.

Over the past decade, Lockheed Martin’s dividend per share has risen by 165%, while the number of outstanding shares has declined by 21%, and its dividend currently has a yield of 2.60%.

If the company continues to increase its dividend and conduct buybacks over the next few decades, shareholders can expect substantial long-term returns on their Lockheed Martin stock.

Despite macroeconomic uncertainties, Honeywell International has demonstrated strong growth, as evidenced by its robust organic sales growth of 9% year over year in the third quarter, which increased to 10% when excluding the impact of operations in Russia being phased out.

The impressive performance was driven by double-digit growth in building technologies, performance materials, and aerospace.

Looking ahead, there are reasons to be optimistic as HON’s management highlighted that its order backlog remains at an all-time high as of the end of November, indicating the potential for volume growth as supply chain concerns continue to ease.

During the Credit Suisse Global Industrials Conference, management reiterated strong guidance for the fourth quarter, with expected organic sales growth of 11.5% at the midpoint.

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