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It’s ‘show me’ time for industrials as earnings season picks up, trader says

Earnings for industrials companies are picking up speed this week.

Raytheon Technologies, 3M and General Electric each reported early Tuesday morning: Raytheon topped sales and profit estimates, 3M benefited from higher demand for the company’s health-care products and GE posted healthy industrial free cash flow, much better than what the Street was anticipating.

Investors now look ahead to a few crucial earnings announcements later this week. Boeing will report Wednesday, and Caterpillar and Honeywell on Friday.

“This has all been very good news but when I look at the industrial space, I’d be very cautious so we’re neutral right here. I think all the easy money’s been made already,” Mark Tepper, president of Strategic Wealth Partners, told CNBC’s “Trading Nation” on Tuesday following Raytheon, GE and 3M’s earnings.

The XLI industrial ETF has rallied 83% since the March lows and returned to pre-pandemic highs. The ETF hit a record high as recently as two weeks ago.

“A lot of these stocks have priced in a full recovery and then some. Last year kind of as the narrative switched towards talk of a recovery, of a reopening, a lot of these stocks rallied and Wall Street seemed to give every company a free pass. You didn’t need to hit your earnings numbers, you didn’t need to give guidance. Now it’s ‘show me’ time,” Tepper said.

The S&P industrials sector is expected to post earnings of $30.48 a share in 2021, up 75% from a beaten-down 2020. The coronavirus pandemic had blunted manufacturing activity and demand for the industrials companies, a trend that is now reversing in the recovery.

Delano Saporu, founder of New Street Advisors, said it’s not too late to jump into cyclical industrials stocks.

“If you’re an investor looking for the longer term and looking for more recovery, looking for the vaccine rollout to improve, you want to make sure that you’re in, and if you are in, that you’re in that hold position or buying it at that upswing,” Saporu said during the same interview.

Boeing, in particular, is a name that Saporu likes. The company, scheduled to report Wednesday morning, is expected to announce a loss of $1.60 a share, narrower than $2.33 a share a year earlier.

Disclosure: New Street Advisors trades Boeing.


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