The industrial sector offers some of the most attractive investment opportunities during periods of economic growth. Industrial companies power the world, construct buildings, and transport goods and supplies. As a result, industrial stocks tend to perform the broader market when the economy expands.
While investing in industrial stocks may help boost your investment portfolio, some stocks will likely provide better returns. Use the following guide to uncover the best industrial stocks in 2021.
What Are Industrial Stocks?
Industrial stocks come from companies in the industrial sector, which includes a variety of subsectors:
- Transportation and logistics
- Waste management
- Aerospace and defense
Industrial companies are involved in producing industrial products or services. It is also called the secondary sector or the industrial goods sector. Some businesses in the industrial sector make or sell machinery and supplies used to produce other products, such as manufacturing or construction equipment.
The primary sector includes companies involved in agriculture, mining, and fishing. The other group of stocks consists of the service sector, which covers retail and hospitality.
The performance of the industrial sector is closely tied to the economy. Supply and demand for construction and manufactured products influence the value of industrial stocks. Industrial stocks often underperform when the economy contracts during a recession. People and businesses postpone purchases and expansion during recessions, leading to less demand for industrial products and services.
When pulling out of a recession, industrial stocks tend to lead the market. Strong performance in the industrial sector indicates a strong economy. However, not all companies perform equally. Some industrial stocks offer greater potential for fast growth, while others provide better stability for long-term investing.
Best Industrial Stocks for Growth in 2021
The industrial sector includes many potential growth stocks. A growth stock is a stock that is expected to grow significantly faster compared to the average growth rate for companies in the same subsector.
Keep in mind that investing in growth stocks often comes with additional risk. For example, growth stocks are less likely to pay dividends and trade at a high P/E ratio, limiting the initial value of the stock.
The price-to-earnings (P/E) ratio is its current share price compared to its earnings per share (EPS). A high P/E ratio is often an indication that a company’s stock is overvalued. Yet, it can also indicate the potential for high growth rates.
Investors with a more robust risk tolerance may want to consider investing in one or more of the following industrial growth stocks:
- Terex Corporation (TEX)
- Mueller Industries, Inc (MLI)
- Deere & Company (DE)
- O. Smith Corporation (AOS)
- Valmont Industries, Inc (VMI)
Each of these five companies has experienced high earnings in recent months. As a result, many analysts expect these industrial stocks to continue growing faster than the rest of the market, leading to higher valuations.
Terex Corporation (TEX)
Terex Corporation expects a tremendous earnings growth rate of 2207.69% for the current year. Terex is a manufacturing company involved in various industries, including infrastructure, construction, energy, mining, transportation, and shipping. The diversity of the company’s operations has helped it maximize from the rebounding economy.
The current TEX stock price is around $51 per share, with an average price forecast of $61 per share by the end of the year.
Mueller Industries, Inc. (MLI)
Mueller Industries reported a 52.4% increase in current-year earnings over the past 60 days. In addition, the company expects a growth rate of 154% for the overall year.
Mueller Industries is a manufacturing company with over 100 years of experience. The company is headquartered in Tennessee but is involved in operations across the globe. The MLI share price also dropped about 11% in the last quarter, providing more significant potential for a higher return.
Deere & Company (DE)
Deere & Company is a recognizable agricultural equipment manufacturer and the owner of the John Deere brand. The company expects an earnings growth rate of 106.9% for the current year.
At $360 per share, Deere & Company (DE) is one of the more expensive industrial stocks on this list. However, the company has experienced strong performance in the past several months due to demand for construction and agricultural machinery and equipment.
A.O. Smith Corporation (AOS)
A.O. Smith Corporation is a leading manufacturer of water heating equipment. The expected earnings growth rate is about 26.9% for the current year.
A.O. Smith Corporation was founded in 1874 and had a net income of $370 million and total assets of over $3 billion. AOS reported record second-quarter sales for 2021, a trend that analysts expect to continue through the rest of the year.
Valmont Industries, Inc (VMI)
Valmont Industries continues to beat earnings estimates, with analysts expecting an earnings growth rate of 32% for the current year. The company manufactures irrigation equipment, traffic poles, windmill support structures, and other industrial equipment.
The earnings per share (EPS) for Valmont Industries have grown about 25% each year for the last three years. The following 12 months could bring faster growth to the company, as it produces equipment that supports many other industries, including transportation, agriculture, and energy.
Best Value Stocks in the Industrial Sector
Value stocks are currently trading at lower prices compared to their potential. Industrial value stocks tend to have a lower P/E ratio than growth stocks. Here are five of the top value stocks in the industrial sector for the rest of 2021:
- Worthington Industries (WOR)
- Advanced Emissions Solutions (ADES)
- Louisiana-Pacific (LPX)
- General Motors (GM)
- Seaboard Corporation (SEB)
These companies have experienced higher dividends, sales, or earnings. However, the price per share has not yet caught up to the company’s potential, leading to a better value for investors.
Worthington Industries (WOR)
Worthington Industries is an industrial metals manufacturer based in Columbus, Ohio. The company was founded in 1955 and now generates over $3.75 billion in annual revenue.
Zacks Investment Research Group set a price target of $76 for WOR after the company issued its Q1 2022 earnings estimates. The company expects an EPS of $1.81 for the quarter, followed by $1.58 for Q2 2022.
Advanced Emissions Solutions (ADES)
Advanced Emissions Solutions produces emissions solutions for coal-fired power generation, municipal water treatment, and other industries. ADES is currently the leader of powder active carbon (PAC) products and has an expected cash flow of $30 to $40 million.
The company also distributed $20.6 million in dividends the past quarter, up from $15.4 million in dividends for the prior quarter.
Louisiana-Pacific Corporation is a building materials manufacturer. The company has a net income of $420 million and revenue of close to $3 billion. A lot of the company’s revenue comes from home construction siding and wood products. Louisiana-Pacific has an EPS rating of 98, which means that its current earnings growth beats 98% of all stocks.
General Motors (GM)
General Motors is one of the largest automobile companies in the world. It has an annual revenue of over $122 billion. Investors have chosen GM as a stable industrial stock for several years. General Motors beat earnings projections during its Q2 2021 earnings report and has a diversified range of products to help it weather any challenges.
Seaboard Corporation (SEB)
Seaboard Corporation is involved in the agricultural and transportation industries, specializing in pork production and ocean transportation. The company also generates electric power and produces sugar.
The wide variety of operations has helped Seaboard Corporation maintain steady revenue growth. As a result, it is considered a value stock due to its low P/E ratio. However, it is also one of the fastest-growing industrial stocks, with a current price of about $4030 per share.
10 Best Industrial Stocks for High Dividends
High dividend stocks provide consistent income, making them an essential part of an older investor’s retirement portfolio. Companies that pay dividends regularly distribute a portion of their earnings to investors. The dividends are typically paid each quarter.
Companies that pay higher dividends are also often well-established organizations. Therefore, investing in high-dividend stocks may provide greater stability, as you are investing in some of the top businesses in the industrial sector.
Here are the top 10 industrial stocks based on their dividend rates:
- 3M (MMM)
The 3M Company (MMM) is a manufacturing company with a wide range of products but is mostly known for its adhesive tapes and disposable face masks. The company generates over $4.1 billion in sales from its adhesives alone.
3M pays a 3.05% dividend yield, with an annual dividend of $5.92 per share. The company’s stock is currently priced at about $195 per share.
- Lockheed Martin (LMT)
Lockheed Martin is an aerospace company with some of the biggest defense contracts. The company produces aircraft used by air forces around the globe, along with aeronautical equipment and technology. The stock is priced at about $361 per share and pays $2.60 per share with a dividend yield of 2.74%.
- General Dynamics (GD)
General Dynamics is another major aerospace and defense company. The company had annual revenue of $37 billion in 2020 and is the third-largest defense contractor. The company is based in the United States and operates in 45 countries. The current dividend yield is 2.39% for a payout of $4.76 per share.
UPS stock has a dividend yield of 2.09%. The United Parcel Service (UPS) is an American shipping and receiving company founded in 1907. The company generated over $84 billion in sales in 2020. Due to a surge in demand for shipping services, UPS continued to grow in 2020 while other industrial stocks pulled back.
- Air Products (APD)
Air Products and Chemicals (APD) is an international corporation that makes most of its income selling gases and chemicals for industrial applications. The company pays a dividend yield of 2.1%. It is a top-ranked dividend stock and considered a stable long-term investment. APD holds a better value compared to 36% of stocks.
- Fastenal (FAST)
Fastenal is the largest distributor of fasteners. The company sells fasteners for construction, industrial, and safety products. The stock price had a 52-week high of $56.17 and a low of $42.17.
However, the company pays a dividend yield of 2.69%. The combination of high dividends and demand for fasteners helps make FAST an attractive industrial stock for investors in 2021.
- Cummins (CMI)
Cummins is an American multinational company that manufactures engines and power generation equipment. The company was founded in 1919 and had an operating income of $2.2 billion. The company’s total assets are valued at over $22 billion. CMI is currently priced at $236.88 and pays a dividend yield of 3.1%.
Illinois Tool Works (ITW) is an American Fortune 200 company that produces fasteners and related components. ITW is a large company with over 42,000 employees. The stock has traded between $188 and $242 over the past 52 weeks.
The dividend yield is 2.12%, while the P/E ratio is 27.33, slightly higher than the industry average. So along with a good dividend payout, ITW may offer faster growth through the rest of 2021.
- Caterpillar (CAT)
Caterpillar is a Fortune 100 company that produces machinery and engines. Caterpillar is the largest manufacturer of construction equipment in the world. The company reported total revenue of $41 billion in 2020. The stock has traded between $139 and $246 in the past year and currently sits at about $211. The dividend yield is 2.10%.
- Union Pacific
The Union Pacific Railroad is a freight hauling company and the second-largest railroad in the United States. The company maintains over 32,000 miles of railroad across 23 states. The stock is close to its previous high of $231 and currently offers a dividend yield of 1.94%.
The industrial sector offers many investment opportunities to suit any investment strategy. However, investing always comes with risk. Your risk tolerance likely depends on your investment goals and timeline. Younger investors can often take on more risk, as they have more time to recover from losses. Individuals who are approaching retirement tend to build their portfolios around high-dividend stocks.