By Philip van Doorn
Even though the U.S. has passed the grim COVID-19 milestone of 500,000 deaths, the rapid decline in new cases points to a period of economic recovery as society opens.
Below are two screens of industrial companies that are expected to increase their sales considerably in the post-pandemic economy.
The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -1.99% has outperformed the Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP -2.67% over the past few weeks, as rising interest rates have indicated that investors fear rising inflation .
This indicates a possible shift in investors’ sentiment to value stocks from the growth stocks that have served then well. Then again, this argument has been made repeatedly in recent years, after which sentiment has kept swinging back to rapidly growing tech companies. If you buy the “value rotation” argument, here’s a list of Wall Street’s favorite value stocks .
Before moving on to the industrial stock screens, take a look at what analysts at BCA Research call “the S&P 5.” These are Apple Inc. /zigman2/quotes/202934861/composite AAPL -2.49% , Microsoft Corp. /zigman2/quotes/207732364/composite MSFT -2.94% , Amazon.com Inc. /zigman2/quotes/210331248/composite AMZN -2.23% , Google holding company Alphabet Inc. /zigman2/quotes/205453964/composite GOOG -3.02% /zigman2/quotes/202490156/composite GOOGL -3.08% and Facebook Inc. /zigman2/quotes/205064656/composite FB -1.30% , which have a combined market capitalization of $7.41 trillion and a 21.4% weighting in the SPDR S&P 500 ETF Trust /zigman2/quotes/209901640/composite SPY -2.12% . Here’s how they performed for three weeks through Feb. 25:
During that same three-week period, the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -1.99% rose 1.3%, the Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP -2.67% declined 4.7% and the yield on 10-year U.S. Treasury notes /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y -0.67% increased to 1.54% from 1.15%.
In a note to clients on Feb. 24, analysts at BCA Research wrote that “tech stocks and growth stocks are especially vulnerable to higher yields,” and that “deep cyclical sectors such as financials, industrials and materials are primed to outperform defensive stocks amid rising bond yields.”
The analysts then got a bit more nuanced, giving the opinion that cyclical stocks may be vulnerable to a near-term pullback, after which lower prices “would present an opportunity to deploy fresh cash to these sectors.”
Short-term timing for stock trades is difficult for non-professionals. The following screens take a broader view of what may happen over the next year.
Also on Feb. 24, UBS analyst Adam Scheiner wrote in a blog note that stocks have been “caught in a tug of war between higher rates and peaking demand fears versus future stimulus and a full reopening of the economy that will lead to another leg of growth and a stronger for longer cycle. We remain in the latter camp as we believe it is too early in the cycle to be worried about peak.”
Industrial stock screens
There are 73 industrial stocks in the S&P 500 Index /zigman2/quotes/210599714/realtime SPX -2.14% , but if we increase the pool to the S&P Composite 1500 Index (made up of the S&P 500, the S&P 400 Mid Cap Index /zigman2/quotes/219506813/composite MID -2.98% and the S&P Small Cap 600 Index /zigman2/quotes/210599868/delayed SML -3.21% ), we begin with 233 industrial stocks.
Expected sales growth in 2021
The pandemic wreaked havoc for sales in certain industries during 2020.
For example, American Airlines Group Inc. /zigman2/quotes/209207041/composite AAL -3.76% reported revenue of only $1.62 billion for the second quarter, down 86% from the second quarter of 2019. Revenue improved to $4.03 billion in the fourth quarter, but that was still down 64% from the fourth quarter of 2019. For all of 2020, revenue fell 62%. Analysts polled by FactSet expect the company’s revenue to total $25.48 billion in 2021, up 47% from 2020, but still down 44% from 2019. And you can see in the second table below that the majority of analysts polled by FactSet recommend selling the stock.
Here are the 25 companies in the S&P 1500 industrial sector that are expected to show the greatest increases in sales during calendar 2021:
Scroll the table to see all the data.