Industrial stocks can often be hard hit when investors smell a potential recession, but not all companies are created equal or will absorb shocks of a volatile economy in the same way. Unlike a large part of other sectors, many industrial companies have a demand that is built into society. While a poor economy can shave off the top of their earnings, they will continue to thrive even in an inhospitable market. The potential impact for many of these companies has already been accounted for their current share prices. As they stand now, they look like attractive plays for businesses with a degree of insulation in an otherwise uncertain market.
Caterpillar (CAT) The strength of Caterpillar has been debated since the company declined from its 52-week high, but its most recent quarterly earnings indicate the company to be in excellent health. While Caterpillar fell slightly short of Wall Street expectations, the company has the potential to thrive both for the long and short term. As a manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives, Caterpillar tends to rise alongside a demand in food. Farmers, in order to achieve the highest possible yield for crops, look to Caterpillar to supply the best equipment. High commodity prices, the result of increasing demand from China and India, is helping provide farmers with the extra cash to purchase such supplies. This will continue to be the case as the economies of these nations expand over the coming years. There had been some concern over slowing Chinese growth but even at a slightly more languid rate of growth, China and other emerging markets will help profits to improve in the coming years.
Further exhibiting the health of the company, Caterpillar increased its EPS guidance for the year by 50 cents to $6.75-$7.25. Its revenue expectation has also been modified by $2 billion, now in the $54-$56 billion range. These optimistic predictions alongside tangible consistency in demand and a considerable backlog for orders that will help drive profits for the remainder of the year make this company an attractive industrial option.
Clean Harbors Inc. (CLH): Regardless of the state of the economy, humans will create garbage. The higher the population, the greater the waste levels and Clean Harbors, Inc. specializes in handling that situation. A provider of environmental, energy and industrial services throughout North America, Clean Harbors boasts 50,000-plus customers from Fortune 500 companies to smaller private entities and federal, state, provincial and local governmental agencies. Its wide range of clients and the necessity of their services make clean harbors a safe bet. The company is up over 300 percent for the past 5 years and 70 percent during 2011. With a 14.83 percent return on equity and a reasonable P/E ratio, Clean Harbors has proven it has what it takes to tough out an otherwise volatile economy.
United Parcel Service (UPS)-UPS is often among the industrial companies most impacted by the economy. The shipping giant is considered a bellwether for health but while flat growth has been taking over the news, the company delivered strong Q2 results that surpassed analyst estimates. Weaker volume did reflect the struggling U.S. economy, but improvements internationally will help UPS stay afloat regardless of domestic challenges. As an international shipping company with major involvement in China, the world’s largest producer, the company is likely to continue to thrive as China grows.
Current levels for the company are attractive. UPS is down for the year though it has not been crushed by the recent string of unattractive economic data.
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