Stocks finished the week slightly up to hit fresh record closing highs and post back-to-back weekly gains. The choppy trading followed a familiar pattern as last week, with stocks fluctuating between gains and losses. Investors appear focused on earnings and a potential stimulus deal as we head into the Presidents’ Day holiday weekend.
All signs point to a stronger rebound in the economy later this year, which should benefit cyclical stocks such as financials, consumer discretionary, and industrials. A rotation had already started at the end of last year, only to be surpassed by tech stocks as of late. I believe that rotation will pick up once again over the next couple of months, which is why I am recommending industrial stocks such as Gibraltar Industries, Inc. (ROCK), Owens Corning (OC), and RPM International Inc. (RPM).
But first, let’s take a more in-depth look at how the market has performed over the past week.
The market was mixed today, with equities hovering near record levels only to see a late push after 2:30 pm to finish at record highs. This followed a similar trading day yesterday, with both the S&P 500 and Nasdaq finishing at fresh record closing highs led by tech stocks. The Dow ended pretty close to its own record closing level on Thursday.
In addition to elevated expectations of a new stimulus bill, the market has been driven by a series of stronger than expected earnings results as profits rebound much faster than analysts expected. This is likely due to current monetary policy and previous fiscal stimulus measures. Stocks continue to set fresh record highs amid the current environment.
The market’s dominant narrative is the prospect of reopening the world’s economies, supported by fiscal stimulus and ultra-low interest rates. While many analysts agree that valuations are historically stretched, that doesn’t consider low interest rates. Low rates not only increase future earnings but also lead to a fear-of-missing-out for investors that see no alternatives to equities.
If we look at which sectors of the markets should benefit from the economy opening back up, industrials surely come to mind. The industrial sector is the backbone of the economy. When the economy is strong, the manufacturing industry flourishes. The President has also indicated his support for a federal infrastructure plan that could be coming over the next couple of months.
This could create millions of jobs, lead to an increase in capital expenditures, and provide a boon to companies in the industrial sector, such as stocks in the construction industry. That’s why I am highlighting the three industrial stocks below.
Gibraltar Industries, Inc. (ROCK)
ROCK manufactures and distributes products to the industrial and buildings market. The company operates through three segments, including a residential segment that makes products for new residential construction and home repair, an industrial and infrastructure products segment that manufactures metal products to sell to contractors for use in highway and bridge construction, and a renewable energy and conservation segment that provides solar racking systems and greenhouse structures.
The company is already seeing strong demand for its residential segment as the housing market has been on fire. The renewable energy segment is also seeing demand due to solar growth. Any infrastructure plan would certainly include clean energy initiatives, so both the industrial and renewable segments should see profits rise from an increase in manufacturing.
The stock has an overall grade of B, indicating a Buy rating in our POWR Ratings system. ROCK also has a Growth Grade of B, which makes sense, seeing that its earnings have grown an average of 29.6% a year over the past five years. The company also has a healthy balance sheet with a current ratio of 1.8. This has led to a Quality Grade of B. You can find out how ROCK fares in the Value, Momentum, Stability, and Sentiment Grades here.
Owens Corning (OC)
OC is a leading manufacturer of glass fiber utilized in composites and building materials. Its products include glass fiber used to support composite materials for transportation, electronics, marine, infrastructure, wind energy, and other high-performance markets for insulation.
The company has been growing through a mix of acquisitions and strategic initiatives. For instance, the acquisition of Paroc, which produces mineral wool insulation for building and technical applications in Europe, helped OC expand its geographic scope in Europe. The company is also seeing strong demand for insulating products due to commercial and industrial construction activity.
The stock has a Buy rating, which translates into an overall grade of B in our POWR Ratings system. It also has a Growth Grade of B. In the most recent reported quarter, both earnings and revenue were up year over year. Earnings are expected to be up 22% in the fourth quarter and 56.7% this quarter. OC has a Quality Grade of B, which means it’s a fundamentally sound company as its current ratio is 2.0, and its quick ratio is 1.3.
We also rate OC based on Value, Momentum, Stability, and Sentiment Grades, which you can find here. OC is in the Industrial – Building Materials industry, which is an A-rated. You can find other top stocks in that industry here.
RPM International Inc. (RPM)
RPM manufactures and sells a variety of paints, coatings, and adhesives. As you can imagine, these products will come in quite handy as industrial projects ramp up. Similar to OC, acquisitions have been a big part of RPM’s growth strategy. In September, the company acquired sandpaper manufacturer Gator Finishing Products. This adds abrasives to its lineup of patch, repair, and cleaning products.
The company has also undertaken a multi-year restructuring plan, called the “2020 MAP to Growth.” The goal is to optimize its manufacturing facilities and provide more efficient plant and distribution facilities. So far, it’s been a success, as the company saw earnings and margin growth in 2020 and the first-quarter fiscal 2021.
RPM has an overall grade of A, indicating a Strong Buy rating in our POWR Ratings system. The company also has a Growth Grade of A, which is not surprising as it saw its earnings rise 30% over the past year. Analysts expect its earnings to be up 52% this quarter and 39% for the year. RPM has a Value Grade of B, making it a GARP stock or growth at a reasonable price due to its forward P/E of 18.38. The company also has strong grades in its other components, which you can find here. Plus, the stock is ranked #3 in the A-rated Chemicals industry. Find other top Chemical stocks by clicking here.
Note that RPM is one of the few stocks handpicked currently in the Reitmeister Total Return portfolio. Learn more here.
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ROCK shares were unchanged in after-hours trading Friday. Year-to-date, ROCK has gained 32.12%, versus a 5.02% rise in the benchmark S&P 500 index during the same period.
About the Author: David Cohne
David Cohne has 20 years of experience as an investment analyst and writer. Prior to StockNews, David spent eleven years as a Consultant providing outsourced investment research and content to financial services companies, hedge funds, and online publications. David enjoys researching and writing about stocks and the markets. He takes a fundamental quantitative approach in evaluating stocks for readers. More...
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