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Sept. 18, 2019, 4:25 p.m. EDT

Five stocks to consider buying as the industrial sector stages a rebound

Caterpillar and General Electric are still on sale as industrials approach a record high

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By Jeff Reeves, MarketWatch


Bloomberg
Canola is loaded into a grain cart from a Caterpillar Lexion combine harvester on a farm near Grosse Isle, Manitoba.

Trade-war talk has dominated headlines as the U.S. and China engage in a tit-for-tat on tariffs. The result has been a volatile year for top industrial firms that do business in Asia.

Perhaps nothing illustrates this give-and-take better than the iShares U.S. Industrials ETF /zigman2/quotes/207844152/composite IYJ -0.67% , which has boomeranged from about $160 in September 2018 to a low of under $120 in early 2019 and then back to crest the $160 mark once more and set a new all-time high.

That dramatic bounce shows that timing is everything. If you’ve been holding the iShares U.S. Industrials ETF /zigman2/quotes/207844152/composite IYJ -0.67% for the past 12 month, then you may have very little to show for it. Then again, a bargain purchase during one of the low periods could have handed you gains of more than 30% in short order. In the past three months, the industrial sector has been the No. 3 performer among 11 tracked by S&P. Over 12 months, industrials rank No. 8, showing recent strong performance.

It’s anybody’s guess what the latest Trump tweet will do to companies that rely on Chinese trade, so short-term volatility is surely to be expected for some time. However, investors have proven that they will keep coming back to select stocks after valuations drop to bargain levels they simply can’t pass up. And, now, the industrial sector seems to have the wind at its back.

So which stocks are attractive? Here are five:

Corning

We’ll start with Corning /zigman2/quotes/200045496/composite GLW -0.07%  because it has been in the news after a 6% decline on Tuesday owing to trouble at its display and fiber-optic arms. That’s disappointing, particularly because the two divisions contribute about half of the company’s revenue. But the glass-half-full argument for this specialty glassmaker is that the rest of its revenue comes from other units that hold promise — including specialty materials for filter materials, smartphone screens and life-science applications.

Furthermore, it’s important to keep the magnitude of the forecast shift in mind. The company said it would swing from a previously projected low single-digit increase to a low single-digit decline. Any decline is bad news, of course, but it seems quite an extreme reaction for a swing that may simply turn out to be from an expected 2% up to 2% down. Plenty of firms on Wall Street post those kinds of numbers with zero warning!

And by the way, while investors this week are caught up in the recent leg down, it’s worth noting the price history of Corning stock: It fell below $29 in December and again in May before its recent trouble in August, and each time quickly snapped back to $33 or higher. That’s a hint that investors have faith in a floor for Corning’s stock. With the shares comfortably above their 52-week low of $26.8 even after recent volatility, there’s a good chance Corning will find a floor here.

General Electric

Another troubled industrial player that many investors may not trust is General Electric /zigman2/quotes/208495069/composite GE -0.88% . However, despite massive challenges over the past decade or so, some investors seem to think that the worst is over for GE as it right-sizes itself and gets focused on a turnaround.

The most obvious proof of that turnaround: GE’s stock bottomed at around $6.50 in December and then rallied more than 70% to crest $11 a share this year. Shares have consolidated lately, but remain comfortably above support levels of around $9. And now that the industrial icon has closed its sale of Baker Hughes , there are hints that the plan to reduce debt and focus on core businesses is finally coming together.

In fact, a William Blair analyst said in a note earlier this year that its “ resurrection ” could accelerate from here, including an IPO of GE’s health-care unit that would certainly pique Wall Street’s interest. And with a persistently low interest rate environment, GE can expect easy access to capital to facilitate its turnaround and recovery.

Caterpillar

Caterpillar /zigman2/quotes/203434128/composite CAT -0.25% fell more than 35% from its 2018 peak to recent lows in early 2019, in large part because of weakness in its construction and upstream oil and gas arms. However, those who are optimistic about industrials can find a lot to like about Caterpillar.

/zigman2/quotes/207844152/composite
US : U.S.: Cboe BZX
$ 157.81
-1.07 -0.67%
Volume: 34,226
Oct. 18, 2019 4:10p
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/zigman2/quotes/207844152/composite
US : U.S.: Cboe BZX
$ 157.81
-1.07 -0.67%
Volume: 34,226
Oct. 18, 2019 4:10p
loading...
/zigman2/quotes/200045496/composite
US : U.S.: NYSE
$ 29.33
-0.02 -0.07%
Volume: 7.31M
Oct. 18, 2019 6:30p
P/E Ratio
18.04
Dividend Yield
2.73%
Market Cap
$22.90 billion
Rev. per Employee
$219,223
loading...
/zigman2/quotes/208495069/composite
US : U.S.: NYSE
$ 8.96
-0.08 -0.88%
Volume: 39.02M
Oct. 18, 2019 6:30p
P/E Ratio
N/A
Dividend Yield
0.45%
Market Cap
$78.19 billion
Rev. per Employee
$429,735
loading...
/zigman2/quotes/203434128/composite
US : U.S.: NYSE
$ 130.71
-0.33 -0.25%
Volume: 4.33M
Oct. 18, 2019 6:30p
P/E Ratio
12.17
Dividend Yield
3.15%
Market Cap
$73.54 billion
Rev. per Employee
$526,173
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