5 Industrial Stocks to Buy as You Head Into 2023

With economic activity returning to pre-pandemic levels, the demand for industrial products is rising. Despite the supply chain headwinds, raw material inflation, and labor shortages, total industrial production in November rose 2.5% year-over-year.

The bipartisan infrastructure law will boost the demand for industrial products by funding several national projects. The Biden administration announced $185 billion in funding and over 6.900 projects, including 2,800 bridge repair and replacement projects.

According to a Business Research Company report, the industrial machinery market is expected to grow at a CAGR of 5.8% to $626.81 billion by 2026. Investors’ interest in the industrial sector is evident from the Vanguard Industrials ETF’s (VIS) 12% returns over the past six months.

Given this backdrop, it could be wise to buy fundamentally strong industrial stocks Honeywell International Inc. (HON), Caterpillar Inc. (CAT), Donaldson Company, Inc. (DCI), Tennant Company (TNC), and Powell Industries, Inc. (POWL).

Honeywell International Inc. (HON)

HON is a diversified technology and manufacturing company providing services worldwide. It operates in four segments, Aerospace, Honeywell Building Technologies, Performance Materials and Technologies, and Safety and Productivity Solutions.

On November 1, 2022, HON and Aramco announced the signing of a joint venture agreement to provide a set of end-to-end business process automation solutions under the Aramco Namaat Industrial Investments Program.

President and CEO of Honeywell Connected Enterprise, Kevin Dehoff, believes in Aramco's business, operations, technology, and Plant. Digital delivery expertise, coupled with Honeywell's proven experience in industrial software and big data analytics solutions, will unlock tremendous value for the industry.

HON’s net sales for the third quarter ended September 30, 2022, increased 5.6% year-over-year to $8.95 billion. The company’s net cash provided by operating activities increased 86.1% from the year-ago period to $2.08 billion.

Its adjusted net income attributable to HON increased 7.8% year-over-year to $1.53 billion. Additionally, its adjusted EPS came in at $2.25, representing an 11.4% increase from the prior-year period.

Analysts expect HON’s EPS and revenue for the quarter ended December 31, 2022, to increase 19.9% and 6.9% year-over-year to $2.51 and $9.26 billion, respectively. It has a commendable earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.

The stock has gained 20% over the past six months to close the last trading session at $210.04.

HON’s POWR Ratings reflect solid prospects. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

Within the B-rated Industrial - Machinery industry, it is ranked #15 out of 79 stocks. It has a B grade for Stability, Sentiment, and Quality.

We have also given HON grades for Growth, Value, and Momentum. Get all HON ratings here.

Caterpillar Inc. (CAT)

CAT manufactures and sells construction and mining equipment, diesel and natural gas engines, and industrial gas turbines. The company operates through five segments, Construction Industries, Resource Industries, Energy & Transportation, Financial Products, and All Other.

On December 15, 2022, CAT announced a collaboration with Luck Stone, the nation's largest family-owned and operated producer of crushed stone, sand, and gravel. President of Resource Industries at CAT, Denise Johnson, said, "Caterpillar has a long-standing relationship with Luck Stone, and we look forward to working together to bring the demonstrated benefits of increased safety and productivity to the quarry industry."

CAT’s sales and revenues for the fiscal third quarter ended September 30, 2022, have increased 20.9% year-over-year to $14.99 billion. The company’s adjusted operating profit increased 45.6% year-over-year to $2.47 billion.

Its adjusted profit rose 43% year-over-year to $2.08 billion. Additionally, its adjusted EPS came in at $3.95, representing a 48.5% increase from the prior-year quarter.

CAT's EPS and revenue for the quarter ended December 31, 2022, are expected to increase 49% and 14.7% year-over-year to $4.01 and $15.82 billion, respectively. It has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.

The stock has gained 35.4% over the past six months to close the last trading session at $241.36.

CAT’s strong outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy. It is ranked #14 in the Industrial - Machinery industry. Moreover, it has a B grade for Sentiment.

To see the other ratings of CAT for Growth, Value, Momentum, Stability, and Quality, click here.

Donaldson Company, Inc. (DCI)

DCI manufactures and sells filtration systems and replacement parts worldwide. The company operates through two segments, Engine Products and Industrial Products.

On November 15, 2022, DCI brand Solaris Biotech entered an agreement with Wildtype, a San Francisco-based company focused on creating cultivated seafood. The two companies will engage in a collaborative development program to design a next-generation family of bioreactor systems to help meet the growing demand for seafood.

DCI’s adjusted net earnings for the first quarter ended October 31, 2022, increased 20.5% year-over-year to $92.90 million. The company’s adjusted operating income increased 18% year-over-year to $126.90 million.

Its adjusted EBITDA increased 15.1% year-over-year to $151.10 million, while its adjusted EPS came in at $0.75, representing a 23% increase from the prior-year quarter.

DCI’s EPS and revenue for the quarter ending January 31, 2023, are expected to increase 18.6% and 4.4% to $0.68 and $837.67 million, respectively. Over the past six months, the stock has gained 21.9% to close the last trading session at $59.22.

It is no surprise that DCI has an overall rating of A, which equates to a Strong Buy in our proprietary POWR Ratings system. It is ranked #3 in the same industry. In addition, it has a B grade for Stability, Sentiment, and Quality.

Click here to see the other ratings of DCI for Growth, Value, and Momentum.

Tennant Company (TNC)

TNC designs, manufactures, and markets floor-cleaning equipment worldwide. The company offers a suite of products, aftermarket parts and consumables, equipment maintenance and repair services, specialty surface coatings, and asset management solutions.

TNC’s total liabilities for the fiscal third quarter ended September 30, 2022, declined 7.7% to $578.6 million, compared to $626.6 million for the fiscal year ended December 31, 2021. Also, its adjusted net income and adjusted EPS came in at $18.60 million and $0.99, respectively.

Analysts expect TNC’s EPS and revenue for the quarter ended December 31, 2022, to increase 70.9% and 4.6% year-over-year to $1.21 and $289.07 million, respectively. Over the past six months, the stock has gained 6.3% to close the last trading session at $63.07.

TNC’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system. Within the Industrial - Machinery industry, it is ranked #13.

In total, we rate TNC on eight different levels. We have given TNC grades for Growth, Value, Momentum, Stability, Sentiment, and Quality. Get all TNC ratings here.

Powell Industries, Inc. (POWL)

POWL designs, develops, manufactures, sells, and services custom-engineered equipment and systems to distribute, control, and monitor electrical energy. The company's principal products include integrated power control room substations, custom-engineered modules, electrical houses, medium-voltage circuit breakers, monitoring and control communications systems, and motor control centers, among other services.

POWL’s revenues for the fiscal fourth quarter ended September 30, 2022, increased 25.7% year-over-year to $162.68 million. The company’s operating income increased 168.1% year-over-year to $10.36 million. 

Its net income increased 168% year-over-year to $8.74 million. Additionally, its EPS came in at $0.73, representing a 160.7% increase from the year-ago period.

POWL’s EPS for fiscal 2023 is expected to increase 185.7% year-over-year to $1. Its revenue for the quarter ended December 31, 2022, is expected to increase 9.5% year-over-year to $116.69 million. Over the past nine months, the stock has gained 76.2% to close the last trading session at $35.54.

POWL’s strong fundamentals are reflected in its POWR Ratings. The company has an overall rating of A, which equates to a Strong Buy. It is ranked #1 in the same industry. In addition, it has a B grade for Growth, Value, Sentiment, and Quality.

Click here to see the other ratings of POWL for Momentum and Stability.

HON shares were trading at $207.08 per share on Thursday morning, down $2.96 (-1.41%). Year-to-date, HON has declined -3.37%, versus a -0.68% rise in the benchmark S&P 500 index during the same period.

Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.

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