American industry is back. Accordingly, investors are increasingly looking at U.S. industrial stocks as a place to invest in this difficult market.
The 2022 Inflation Reduction Act is one of the key drivers of industrial stocks investors are focusing on. Most of this Act’s $370 billion in aid is aimed at building supply chains, which start with heavy industry processing raw materials.
With American manufacturing getting an immense aid package, there is value in industrial stocks. These are the early days of the renaissance, but some industrial companies were already doing quite well. If you owned them in 2022, you made money. If you buy them now, you should make even more money.
The companies in this gallery are all involved in heavy industry. They include a steel company, an equipment manufacturer, and a chemical company. All gained in value last year. All dominate their markets. And all are positioned to do well in 2023. They even pay dividends which, if interest rates start falling later in the year, should lift their stock values further.
Without further ado, let’s look at three overlooked industrial stocks to consider right now.
America’s best steel company doesn’t make steel. That is, it doesn’t mine iron and coal to produce steel from its raw materials.
Nucor (NYSE:NUE) is a steel recycler. It uses electric arc furnaces to turn scrap metal into new steel. The company has been doing this for a half century. Think of it as a steel technology outfit constantly looking for new processes. Impressively, NUE stock is up 40% over the last year.
If any steel company can be called green, it’s Nucor. That’s because the company has 70 scrap metal yards supplying it with raw steel, run through a unit called David J. Joseph Co., which brokers scrap and operates junk car yards under the name U-Pull-And-Pay. The unit continues growing through acquisitions.
This business is also very profitable. Last year Nucor earned $7.6 billion, $28.88 per share, on revenue of $41.5 billion. About 18 cents of every dollar that came in turned into net income. Those are tech numbers, not industrial numbers. Indeed, Apple (NASDAQ:AAPL) had 22% of its revenue flow through to its bottom line.
But since Nucor is still making steel, it also offers value. The company’s current price-to-earnings ratio is below 6-times, near the bottom of the business cycle. Nucor is a buy-and-hold stock, not a stock you trade, which may be why Tipranks counts only four analysts, only one of whom wants you to buy it. But if you’re going to beat the averages, you buy good companies when no one wants you to, then hold them through the business cycle.
One of the enduring images of the Ukraine War is of tractors hauling away damaged Soviet tanks. Most of them seemed to be Deere (NYSE:DE) tractors. The company was founded in 1837 and had generations of farmers as lifelong fans.
But tractors today aren’t what they were. As with cars, they use a lot of computer chips. They use so many that the company could disable the tractors remotely; when Russians looted a Deere dealership in Ukraine last year, they could disable them remotely. (The company can no longer do this in the U.S. under “right to repair” rulings.)
Deere’s fiscal year ends in October. For fiscal 2022 the company earned $7.1 billion, or $23.28 per share, on revenue of $52.5 billion. Both were up about 20% from the year before. That means 13.5% of the company’s revenue became net income, allowing Deere to afford a dividend of $1.20 per quarter, which has doubled over the last five years.
Small wonder that analysts are treating Deere like a 2021 tech stock. There are 18 now following the company, and 12 say you should buy it, expecting a one-year gain of nearly 19%.
Today’s DuPont (NYSE:DD) isn’t yesterday’s DuPont.
The original company was founded in 1802 by a French chemist making black powder for explosives. It built a fortune worth $14.3 billion, now spread among 3,500 living relatives. (I worked with the late Pete DuPont in the 1990s.)
A 2017 merger with rival Dow Chemical (NYSE: DOW), followed by a 2019 de-merger which reorganized the U.S. chemical industry, eliminating domestic competition, but increasing global competitiveness.
Today’s DuPont combines what the specialty chemical units of both companies were. Its brands include Kevlar, Styrofoam, and Tyvek. Dow got commodity chemicals, while a spin-off called Corteva Agriscience (NASDAQ: CTVA) took the agriculture business.
The new DuPont makes low-volume but high-margin products protected by patents and copyright for cars, consumer products, and electronics. Until recently, the stock was going nowhere fast, but it has been rising since late September.
In 2022 DuPont earned $5.8 billion, $11.61 per share, on revenue of $13 billion. This was mainly achieved by selling most of its Mobility & Materials business to Celanese (NYSE: C.E.) for $11 billion in cash. The deal to Celanese let DuPont retire $2.5 billion in long-term debt and buy back $3.25 billion of stock, as well as hike that dividend.
The changes have analysts pounding the table for DuPont. Last year’s lower sales were blamed on China, which contributed 20% of its revenue. This year DuPont expects to earn $3.75 per share from sales of $12.6 billion. Analysts expect it to do even better. Currently, nine of the 13 analysts following it at Tipranks want you to buy it. I like it, too.
On the date of publication, Dana Blankenhorn held long positions in MSFT and AAPL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. His 10th novel is The Time Tunnel, now available at the Amazon Kindle store. Write him at email@example.com or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.
Consumer Staples, Industrial