Kennametal, Clean Harbors: Industrial Stocks To Play The Recovery

The industrials sector has underperformed this year, as Covid-19 related lockdowns impacted the performance of companies over the last two quarters, while investors also favored higher-growth, asset-light sectors such as technology. However, there are several trends that could benefit industrials stocks in the near-to-medium term. With the availability of multiple highly effective Covid-19 vaccines (Pfizer and Moderna have published strong efficacy data on their vaccines) looking likely in early 2021, things should start returning to normal. As the products and services provided by the industrial sector are integral to the broader economy, these companies should see demand improve fairly quickly. Separately, President-elect Joe Biden has committed to double down on infrastructure spending pledging to fix U.S. infrastructure which has seen very limited investment from the federal government in recent years. This should also help industrial companies.

Our indicative theme of Industrial Stocks To Play The Recovery includes stocks from the industrials and transportation space that had been growing relatively quickly prior to the pandemic, with increasing pricing power and profitability and manageable debt, but remain currently out of favor with the markets. Key names in the theme include Clean Harbors (NYSE:CLH) a company involved in hazardous waste disposal, Allegiant Travel Company (NASDAQ: ALGT) a low-cost airline that operates scheduled and charter flights, and Kennametal (NYSE:KMT) a tooling and industrial materials supplier. See our theme Industrial Stocks To Play The Recovery for a complete list of companies and the detailed criteria we’ve used to select tickers.

[Updated 9/14/2020] Industrial Stocks Poised To Gain As The Economy Recovers

Our theme Industrial Stocks To Play The Recovery – which includes a range of industrial companies that have strong fundamentals, but have underperformed the market – is down by about -6.7% year-to-date, versus a 3.4% gain for the S&P 500. The theme has returned 45% since 2017, compared to about 25% for the S&P 500. As the products and services that these companies provide are integral to the broader economy, the current pandemic is only likely to be a temporary setback. As the economy improves, demand is likely to rebound sharply benefiting these stocks. Within the theme, FTI Consulting (FCN) has seen the lowest relative decline, falling by 2% year-to-date. In comparison, Kennametal (KMT) has fared the worst falling by about -16%. Below is a quick overview of some of the stocks and how they have fared.

Zebra Technologies (ZBRA)  a company that manufactures and sells marking, tracking, and computer printing technologies is down by about -2% year-to-date. The stock is up 140% since early 2018.

ABM Industries (ABM) a company that provides facility management services ranging from electrical and lighting management, HVAC services, janitorial services, and landscaping is down by about -3% year-to-date. The stock has gained about 1.6% since 2018.

Heico Corporation (HEI) is an aerospace and electronics company that focuses on relatively niche markets. The stock is down by about -5% year-to-date. The stock is up by about 80% since 2018.

Rexnord Corporation (RXN) an industrial company that manufactures drives, gears, and bearings has seen its stock decline by about -7% year-to-date. The stock is up by about 13% since early 2018.

PRA Health Sciences (PRAH), a contract research organization, has seen its stock decline by about -7% this year. The stock is up by about 13% since early 2018.

Kennametal (KMT)  a tooling and industrial materials supplier, has seen its stock decline by about -16% year-to-date. The stock has lost about -34% since early 2018.

FTI Consulting (FCN) one of the largest global management consulting firms has seen its stock decline by about -2% year-to-date. The stock is up 150% since early 2018.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio to beat the market, with over 100% return since 2016, versus about 50% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk, it has outperformed the broader market year after year, consistently.

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