This will not be a surprise to anyone. Industrial stocks are one of the most hard hit groups. And that’s because they are cyclical stocks that take it hard when the economy is on the decline.
In this case, the economy is not on the decline. It is virtually DOA as so many sectors of the economy are shut down because of the health crisis.
We all know the economy will come back in time and the most beaten down groups will also rally the most. That is why I continue to share ideas that long term investors might want to snap up at these discount levels. When it comes to the industrial group these are the names to watch: Caterpillar (CAT), Deere & Co (DE), Danaher (DHR) and Illinois Tool Works (ITW).
CAT is widely regarded as a global economy barometer. The United States’ trade war in China, beginning in early 2018, delivered a crippling blow to this industrial, leaving it as one of the weaker links in the Dow Jones chain. The hit the global economy has taken under the strain of the coronavirus pandemic is bringing it all full circle once again.
However, now just might be the time to buy CAT stock because it is well down from the highs. Plus you get a hearty 3.5% dividend yield while you wait for the economy to get back on track. And once it does, then few companies can rev up earnings growth and share price gains quite like CAT. Especially in the early to mid stages of a new bull market. Sure, it is possible that CAT heads lower before this bear is over and done. But for long term investors it is hard to see great downside in bagging CAT at this level.
Deere & Co (DE)
Often investors talk about CAT and DE in the same breadth. Both make large machinery which is an economically sensitive area. But one way in which they differ at this time is that DE benefits more from the agriculture. And as we know, no matter how bad the economy gets, we all still have to eat.
That is why DE is down only 21% this year which is a good spot less than the market average. This has led many top Wall Street analysts to stay behind shares which carry an average target of $176 which is nicely above the current level. The company says that “Nothing Runs Like a Deere”…and that is certainly true when the economy is expanding and the bull market is raging on. So it may be a good idea to pick up your DE shares soon for when that time finally arrives.
DHR has taken a more modest hit in the COVID-19 crisis, because it markets, designs, and manufactures medical equipment (among other things given that it is a very diversified manufacturer). Given the strength of the medical equipment, DHR has been put it on the radar of Wall Street analysts as a good buy rated stock. In fact in recent days it has gotten a number of reiterated Buy ratings with target prices ranging from $154 all the way up to $187.
It is worth noting that on March 18, 2020, the FDA issued an emergency use authorization to Danaher for its onsite coronavirus test. This is a nice little boost for DHR that could account for the smaller stock price drop.
Illinois Tool Works (ITW)
ITW shares are down 21% from the start of the year. Yes, that is much better than average because ITW is a much better than average company that long term investors just don’t want to sell from their portfolios so easy.
When the economy is in full swing, few large industrial companies produce such a steady stream of earnings beat and raise quarters. That is why ITW doubled in price over the previous 4 years. On top of that you have a healthy 3% dividend yield. That is why Wall Street analysts continue to pound the table on ITW. Most notable is the 5 Star analyst, John G. Inch, who yesterday upgraded ITW to a buy with $170 target. The timing on ITW shares is suspect in the short run as the bear continues to run its course. But over the long haul investors would be hard pressed to find a better industrial stock to have in their portfolio.
Want more great investing ideas?
The Fake Rally is Over! – Why the bear is still in charge. Along with the right investment strategy to generate profits while stock prices head lower.
How to Make Money in a Bear Market – Learn more about this vital webinar 4/9 hosted by Steve Reitmeister & featuring famed investor Marc Chaikin.
Reitmeister Total Return portfolio – Discover the portfolio strategy that Steve Reitmeister used to produce a +5.13% gain while the S&P 500 fell by -14.97%.
CAT shares closed at $114.67 on Friday, down $-2.07 (-1.77%). Year-to-date, CAT has declined -21.81%, versus a -22.44% rise in the benchmark S&P 500 index during the same period.
About the Author: Steve Reitmeister
Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks. More...
More Resources for the Stocks in this Article
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