With many of the hottest growth names selling off to start the week and plenty of companies in the Dow Jones Industrial Average showing strength, it’s evident that we are starting to see some rotation. Whether this has to do with the sharp decline in COVID-19 cases or rising Treasury yields, a short-term change in the tone of the market is occurring.
Paying attention to the stocks that are strong during a weak day in the indices can give investors insights into what could become new market leaders.
Since companies in the industrial sector are usually tied to the economy, they should perform well as we continue to see things recover and more stimulus is passed. Combine that with the fact that President Joseph Biden has big infrastructure plans and it’s safe to say that industrial stocks are worth a look at this time.
Here are 3 industrial stocks to buy that are showing relative strength.
1. United Rentals
Whenever you notice a stock is nice and green on a distribution day in the market, it pays to take note. That’s exactly the case with United Rentals (NYSE:URI), an industrial stock that continues to consistently hit new highs. United Rentals is the largest equipment rental company in the world with a network of over 1,100 rental locations throughout the U.S. and Canada. Some of the company’s customers include construction companies, industrial companies, manufacturers, utilities, municipalities, homeowners, and more. As the economy gradually improves, construction activity should increase, which will lead to strong revenue for a company like United Rentals.
This is a good example of an industrial stock that could benefit from the Biden administration’s infrastructure plan which could result in $2 trillion in spending over the next four years. Even though United Rentals recently reported a Q4 rental revenue decline of 10.1% year-over-year and a net income decrease by 12.1% year-over-year, shares have rallied nicely in February and are up roughly 30% year-to-date.
The company’s CEO, Matthew Flannery, mentioned that United Rentals expects to:
“pivot back to growth through the remainder of the year, which, together with continued cost discipline, will deliver strong profitability.”
This bodes well for the stock price and makes it one to watch if you are interested in owning a top-performing stock in the sector.
2. Norfolk Southern
Buying stocks in the rail industry can be a good option if you want exposure to companies that play a critical role in the domestic supply chain. Norfolk Southern (NYSE:NSC) is one of the highest quality options in the subsector thanks to its strong balance sheet and experienced management team.
The company operates 19,500 railway route miles and serves every major container port in the eastern United States. Norfolk transports a lot of industrial products such as metals, construction materials, and coal. It also generates substantial revenue from intermodal railcars, agriculture, forest, and consumer products.
The majority of rail companies have had to deal with disruptions caused by the pandemic, but the good news is that volumes are picking up again. Investors should be impressed with the fact that Norfolk was able to get its operating expenses down by 7% year-over-year to $6.8 billion, largely driven by lower fuel costs, compensation and benefits, and materials costs. While revenue decreased by 13% year-over-year in 2020, things should be improving for Norfolk Southern in 2021 as the pandemic starts to subside.
It’s also a great stock to add thanks to its history of dividend increases and the fact that the stock is making new highs in a weak market.
3. Deere & Company
Last on our list is Deere & Company (NYSE:DE) the world’s largest producer of farm equipment. Deere is also a leading provider of construction equipment and could be in for a monster 2021 thanks to a sharp uptick in agriculture and construction activity. The infrastructure bill we mentioned earlier could be a nice growth driver, long-term agricultural demand should be on a steady uptrend for years to come, and you also have to like the fact that the John Deere brand is instantly recognizable and commands respect in the agricultural equipment world.
The company’s recent earnings release was impressive, to say the least, as Q1 EPS increased by 137% to $3.87 per share. Revenue increased across all of the company’s segments in the quarter, and Q1 net income nearly doubled year-over-year to $1.2 billion. This confirms that the Deere’s new operating strategy is firing on all cylinders. If the company’s boosted full-year earnings forecast is any indication, Deere & Company is poised to be one of the strongest industrial stocks of 2021.