The industrials sector is inherently cyclical, which is why investors are so low on the sector right now. In fact, recession fears are driving much of the current bear market. But, if you think long-term, there are plenty of industrial companies that seem like they could be good additions today. Some companies to look at are Stanley Black & Decker (SWK -2.59%), Rockwell Automation (ROK -0.31%)and Honeywell International (HON -1.82%). Here’s a quick look at each of them and why they might be worth adding to your portfolio.
1. Fast and Furious
Stanley Black & Decker stock is down about 60% in 2022. It’s not really that surprising; management has more than halved its year-to-date earnings projections. That’s not good, with the toolmaker suffering from declining sales, supply chain issues and rising costs thanks to inflation.
Stanley Black & Decker has significant exposure to retail clients. This group of buyers tends to withdraw more quickly than professional clients during difficult times. That’s exactly what management has seen lately, with professional tool sales still holding up fairly well. The retail side of the business, however, makes the business heavy on what is known as the short cycle in the industrial space. When the economy finally recovers, Stanley Black & Decker will likely see business rebound faster than many of its industry peers, with consumers heading to stores again. Meanwhile, management is not standing still, but looking to cut costs and streamline operations.
Investors willing to look past the current headwinds can see a historically high 4% dividend yield while waiting for better days. It’s also worth noting that Stanley Black & Decker is a dividend king, so regular dividend increases are the norm here.
2. Help others help themselves
Rockwell Automation’s stock is down more than 35% so far in 2022. Like Stanley Black & Decker, Rockwell Automation lowered its guidance for 2022 in its last earnings report, but not as much, which has drops sales growth by a range of 11%. at 15%, at 10.5% at 12.5%. Adjusted earnings guidance was cut to $9.30 to $9.70 per share, which was within the range of previous guidance. In other words, there are a few issues here, but they’re not exactly huge. Inflation and supply chain issues are the notable headwinds.
Rockwell Automation’s business is helping customers do more with less. And that’s something that becomes more important during periods of economic weakness like the one fueling the current bear market. In fact, management reports that Rockwell Automation’s backlog is currently at record highs. Despite the decline in stocks, stocks here are probably best viewed as fairly valued and not cheap. But if you’re willing to buy big companies at fair prices, this Dividend Achiever might be right for your wallet. The dividend yield is around 2%, around the middle of the yield range over the past decade.
3. A pillar of the industry
The final company here is Honeywell International, a diversified industrial giant with an iconic name and reputation. The stock is down “only” about 17% in 2022. That pushed the dividend yield to about 2.3%, which is at the upper end of the yield range over the past decade. It looks relatively cheap for a stock that doesn’t come up for sale very often.
The big story here, however, isn’t really about a potential business turnaround like that of Stanley Black & Decker or the possibly hidden value of Rockwell Automation. It is a $115 billion market capitalization industry giant with a diversified business that tracks general trends in investor sentiment. The truth is that Honeywell’s business is doing quite well today, with second quarter earnings beating management’s forecast and a growing backlog. Given the relative strength here, you can see why the stock isn’t down as much as the other two mentioned here. Still, even the most modest stock decline shouldn’t be ignored, as it could be a good opportunity for long-term investors to own a solid industrial manufacturer.
Buy while they’re down
The key with cyclical stocks like industrials is that you don’t really want to buy them when things are going well. Indeed, the next economic downturn will likely lead investors to shift gears and sell them, perhaps indiscriminately. Economically driven bear markets, like the one we seem to be in today, are a good time to look at the stocks of companies like Stanley Black & Decker, short-cycle heavyweight, Rockwell Automation and its economic equipment, and industry heavyweights like Honeywell. International which declines despite still solid results. If you take a little time to dig here, one or more of these stocks could end up in your portfolio today.