Because of strong expenditure and the adoption of cutting-edge technology, the industrial sector is well-positioned to see considerable growth in the coming years. Also, investing in industrial stocks with dividend history and strong metrics might assist in protecting investors’ portfolios from eroding due to high inflation.
Given this backdrop, let’s probe into the strong fundamentals of Honeywell International Inc. (HON), Lockheed Martin Corporation (LMT), and Caterpillar Inc. (CAT).
Even after facing substantial challenges as a result of rising interest rates, industrial production rose 0.4% in March, while capacity utilization increased to 79.8% in March, 0.1 percentage points above its long-run average.
Moreover, the industrial machinery sector has gained traction due to its incorporation of advanced technology, benefitting productivity and profitability. Driven by the rising adoption of industrial automation in various sectors, the global industrial automation market is expected to grow at a CAGR of 7.2% to $81.40 billion by 2033.
As supply-chain disruptions and labor shortages continue to pose challenges in manufacturing, capital spending on industrial equipment could get buoyed due to the industrial sector’s drive toward greater automation and rapid technological advancements.
While recessionary concerns continue to create market chaos, the industrial sector remains resilient. The Industrial Select Sector SPDR ETF (XLI) has gained 16.2% over the past nine months compared to the S&P 500’s 9.1% increase. Furthermore, the industrial machinery market is expected to reach $425.83 billion by 2028, growing at a CAGR of 6.3%.
As the sector could remain a bright spot this year, quality industrial stocks HON, LMT, and CAT might be solid buys to deliver consistent and substantive long-term returns.
Honeywell International Inc. (HON)
HON is a global provider of services in the industrial and technology sectors. Aerospace; Honeywell Building Technologies; Performance Materials and Technologies; and Safety and Productivity Solutions are its four business segments.
On April 5, in order to power its brand-new hybrid-electric airship, the LCA60T, FLYING WHALES QUEBEC chose HON's 1-megawatt generator. The most powerful generator for aviation would provide compact and efficient power aboard the new hybrid-electric airship.
This agreement should pave the path for a revolution in air travel, which is expected to boost long-term income for the business eventually.
On March 10, the company paid a quarterly dividend of $1.03 per share on its common stock. Its forward annual dividend of $4.12 translates to a 2.10% yield on current prices. The dividend has grown at 5.3% and 6% CAGRs over the past three and five years, respectively.
In the same month, HON announced a new collaboration with Marriott International to improve in-room comfort and control for hotel guests across Marriott Bonvoy’s portfolio of hotel brands. Through this, both companies aim to deploy personalized and innovative guestroom control offerings built on the Honeywell INNCOM guestroom automation and energy management software and hardware solutions.
In the fiscal fourth quarter that ended December 31, 2022, HON’s net sales increased 6.1% year-over-year to $9.19 billion. Its operating income margin grew by 220 basis points from the year-ago value to 19.7%, while its adjusted EPS came in at $2.52, up 20.6% year-over-year.
In addition, the company’s total assets have grown at a CAGR of 2% over the past three years.
Analysts expect HON’s EPS and revenue to increase marginally year-over-year to $1.93 and $8.52 billion in the fiscal first quarter (ended March 31, 2023). For the current quarter (ending June 2023), its EPS and revenue are expected to increase 4.8% and 2.6% year-over-year to $2.20 and $9.18 billion.
It surpassed the EPS estimates in each of the trailing four quarters, which is impressive. Shares of HON have gained 11.5% over the past six months to close the last trading session at $195.90.
HON’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It also has a B grade for Growth, Momentum, Stability, Sentiment, and Quality. In the 78-stock A-rated Industrial - Machinery industry, it’s ranked #18. Click here to see HON’s rating for Value.
Lockheed Martin Corporation (LMT)
LMT, a security and aerospace company, engages in the research, design, development, manufacture, integration, and sustainment of technology systems, products, and services worldwide. It operates through four segments: Aeronautics; Missiles and Fire Control; Rotary and Mission Systems; and Space.
On April 3, LMT announced that the Commonwealth of Australia had chosen it as the preferred bidder for Project JP9102, the Australian Defense Satellite Communications System. With its JP9102 proposition, LMT would draw on its extensive experience in space-based mission solutions and robust satellite communications networks, thereby contributing further to the growth and development of Australia's defense and space industries.
On March 27, LMT announced that it had inked a partnership agreement with Singapore's Defence Science and Technology Agency (DSTA) that would open the door for collaborative efforts in investigating data analytics and process automation that support mission readiness.
LMT's Chief Executive for Asia, Mr. Andrew Linstead, said, "This partnership not only reflects our commitment to Singapore but underlines our enduring relationship and will help to further build operational expertise, enhanced readiness and mission effectiveness."
The company’s annual dividend of $12 yields 2.44% at the current price level. Its dividend payouts have increased at an 8% CAGR over the past three years and an 8.7% CAGR over the past five years. LMT has a record of 20 years of consecutive dividend growth.
LMT’s net sales increased 7.1% year-over-year to $18.99 billion in the fiscal 2022 fourth quarter (ended December 31, 2022). Its non-GAAP net earnings grew 1.7% year-over-year to $2.01 billion. Its non-GAAP EPS came in at $7.79, up 7.9% year-over-year. Over the past three years, its revenue and total assets grew at a CAGR of 3.3% and 3.6%, respectively.
Street expects LMT’s EPS for the second quarter (ending June 30, 2023) to increase marginally year-over-year to $6.38. Its revenue is expected to increase by 3% year-over-year in the current quarter to 15.92 billion. Moreover, the company surpassed the EPS estimates in three of the trailing four quarters.
Over the past six months, the stock has gained 21.2% to close the last trading session at $492.14.
LMT’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
It has a B grade for Stability and Quality. Out of 71 stocks in the Air/Defense Services industry, it is ranked #17. Click here to see the other ratings of LMT for Growth, Value, Momentum, and Sentiment.
Caterpillar Inc. (CAT)
CAT produces industrial gas turbines, diesel-electric locomotives, diesel and natural gas engines, and mining and construction equipment. Its segments include Construction Industries; Resource Industries; Energy & Transportation; Financial Products; and All Other.
On January 6, the company announced the investment in Lithos Energy, Inc., a U.S.-based battery technology company that produces lithium-ion battery packs. Through this collaboration, Lithos' expertise in making battery packs for demanding circumstances should strategically help CAT in accelerating the development of its electrified product portfolio.
CAT’s four-year average dividend yield is 2.43%, and its current dividend of $4.80 translates to a 2.14% yield on prevailing prices. Its dividends have grown at a 6% CAGR over the past three years and an 8.7% CAGR over the past five years. Also, it has a record of 29 years of consecutive dividend growth.
In the fourth quarter, which ended on December 31, 2022, CAT’s total sales and revenues increased 20.3% year-over-year to $16.60 billion. Its adjusted profit rose 37.9% from its year-ago value to $2.01 billion, while its adjusted EPS increased 43.5% year-over-year to $3.86.
For the fiscal first quarter (ended March 31, 2023), its EPS is expected to increase 31.3% year-over-year to $3.78. Its revenue for the to-be-reported quarter is expected to increase 11.5% year-over-year to $15.16 billion. The company has a promising earnings surprise history, as it surpassed the EPS and revenue estimates in three of the trailing four quarters.
CAT’s revenue and EBITDA grew at CAGRs of 3.4% and 3.6% over the past three years. Likewise, its EPS grew at a CAGR of 5.6% during the same period.
Over the past nine months, the stock has gained 27.5% to close the last trading session at $221.67.
CAT’s POWR Ratings reflect its solid prospects. The stock has an overall B rating, which translates to Buy in our proprietary rating system.
It has a B grade for Growth and Momentum. Within the Industrial - Machinery industry, it is ranked #16 out of 78 stocks. Click here to see the additional ratings for CAT (Value, Stability, Sentiment, and Quality).
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HON shares were trading at $196.35 per share on Friday afternoon, up $0.45 (+0.23%). Year-to-date, HON has declined -7.89%, versus a 7.91% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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