A few industrial stocks look ready to rise if the Delta wave subsides.
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Industrial stocks are near record highs, but not all are keeping pace. A few are boosting the performance of the entire sector. Now a few others look ready to move if the Delta wave of Covid-19 subsides.
Industrial stocks in the S&P 500 index are less than 2% off their 52-week high. But that high came back in May. The sector, overall, has been stuck for the past three months while the S&P 500 and Dow Jones Industrial Average have tacked on about 9% and 4%, respectively.
Not all in the sector have been stagnant. Stock in electrical equipment maker Eaton (ticker: ETN) hit a record high on Aug. 11. Shares are up about 39% year to date, boosted by optimism for electric-grid upgrades as the world transitions to electric vehicles and renewable-power generation.
Stock in automation equipment and software supplier Rockwell Automation (ROK) also hit a new high on Aug. 11. Shares are up about 26% year to date, boosted partly by higher capital spending from the auto industry as it prepares to retool plants with the latest technology to build more new EVs.
ABB (ABB) and Schneider Electric (SU.France) shares hit all-time highs on Friday, and have gained about 34% and 29% year to date, respectively. The two have been lifted by the same factors boosting Eaton and Rockwell.
Stock in some aerospace suppliers, a key industry group, haven’t kept up recently. Raytheon Technologies (RTX), Honeywell International (HON), and General Electric (GE) shares are up 22%, 9%, and 21% year to date, respectively. Not bad, but over the past three months the three shares are only up about 2%, on average.
All three have large aerospace franchises, but all do other things in the industrial world too. Raytheon is a large defense supplier. GE makes power generation and health care equipment, and Honeywell has automation and energy businesses, among others.
If a catalyst can drive those three higher after the recent few months of stock consolidation—a period where shares don’t do much—their stock charts could start to look more like the prior four. That would be good news for investors.
The most likely positive catalyst is the ongoing recovery in air travel. In the second quarter, commercial air traffic in the U.S. fell by about 33% compared with pre-pandemic 2019. That was an improvement from the first quarter of 2021, when traffic was down more than 50% compared with the first quarter of 2019.
The Delta variant has caused some concern, but if infections and hospitalizations crest, and vaccination rates improve, investors might start thinking about air-traffic growth more than they are thinking about added Covid-related restrictions on travel.
Of those three stocks, Raytheon is the most popular on Wall Street. More than 80% of analysts covering the company rate shares Buy. The average Buy-rating ratio for stocks in the S&P is about 55%. About 65% and 63% of analysts covering GE and Honeywell rate their shares Buy.
GE, however, has the most upside, relative to average analyst price targets. GE trades about 17% below target prices. Raytheon trades about 16% below target prices and Honeywell trades about 5% below analyst target prices.
Write to Al Root at [email protected]
