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Two industrials stocks caught up in market weakness look like buys heading into 2022, traders say

Industrials stocks were caught up in last week’s sell-off, but that market weakness could offer an opportunity to pick up some of the best-in-breed names at a discount.

CNBC’s “Trading Nation” asked two traders the industrial stock that stands out to them heading into the new year.

Nancy Tengler, CEO and CIO of Laffer Tengler Investments, highlights Honeywell, which has missed out on the market rally this year.

“This is a company that has been held back by its aerospace segment, which is 35% of total sales and its most profitable, and they were able to improve margins even in this environment by 390 basis points [one hundredth of 1 percentage point]. So I think when air travel returns, this is a company that has embraced digitization and will be poised to provide some outperformance,” Tengler said on Friday.

Honeywell has fallen nearly 4% this year as the XLI industrials ETF has risen 16%. It is a long-term outperformer, though, climbing 84% in the past five years and beating sector gains.  

“It’s an above-market yield. It’s actually an above-the-30-year-bond yield and they’ve been growing the dividend about 9% annually over the last five years. In a rising-inflation or high-inflation environment, dividend growers are a good place to be. So I think that’s one that you might want to take a look at as an investor if you don’t own it already,” said Tengler.

Craig Johnson, chief market technician at Piper Sandler, says the broad relative strength in the industrials should benefit the entire group. But, if he were to pick out one name, he says W.W. Grainger looks like a standout.

“We just broke out of a very nice sort of consolidation range [in Grainger] and breaking out to new highs and the theme behind all this is housing. That’s a big theme that’s sort of driving all these industrial names right now, and we’re still short housing all across the country at this point in time,” he said.

W.W. Grainger has outperformed this year, adding 21% in 2021. Housing data has also recently improved — housing starts in November, for example, hit an eight-month high.

“A lot of these industrial names I think are poised to work as you go into 2022,” he added.

Disclosure: Laffer Tengler Investments holds shares of Honeywell.

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