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What are we looking for?

U.S. industrial stocks poised to do well as other sectors weaken.

U.S. equities have been volatile over the past week. The Dow Jones Industrial Average has rebounded after dipping below its 200-day moving average. The S&P 500 industrials index has slipped just more than 7 per cent since its Nov. 16 high, but has also started to rebound.

A relative rotation graph plots sectors into four quadrants: leading, weakening, lagging and improving. Looking at a four-week relative rotation graph of the 11 major sectors that make up the S&P 500 index, the industrials sector has moved from the lagging quadrant to the improving quadrant.

Meanwhile, sectors that were leading, such as energy, semi-conductors and financials, have started to weaken recently relative to the performance of the S&P 500.

The screen

We will use the Trading Central Strategy Builder to search for large-cap industrial stocks listed on U.S. exchanges.

We will focus on companies with market capitalization of more than US$10-billion to limit our results to the largest and most established stocks in the sector.

To select companies that appear to be well valued, we chose companies indicating a trailing price-to-earnings ratio of 25 or less. Note that the average P/E ratio of companies in the S&P 500 Industrial sector is currently around 31.34.

To identify companies with profitable businesses and a track record of growing earnings per share, stocks must have an EPS growth rate of 10 per cent or more last quarter when compared with the same quarter a year ago. Revenue growth must also be positive.

Dividend yield must be at least 1 per cent so investors will be paid to wait in case of a market downturn.

Finally, year-to-date and one-year share-price changes must be greater than zero per cent.

More about Trading Central

Trading Central is a global leader in financial market research and investment analytics for retail online brokers and institutions. Its product suite provides actionable trading ideas based on technical and fundamental research covering stocks, exchange-traded funds, indexes, forex, options and commodities. Strategy Builder, our stock screener, is available through leading retail brokers in Canada and worldwide.

What we found

U.S. industrial stocks

RankCompanyTickerRecent Price (US$)Market Cap. (US$Bil) P/E EPS Growth Rate % (last Qtr vs. Prior Yr)Revenue Growth % (last Qtr vs. Prior Yr)Div. Yield (%)1 Yr Performance (%)YTD Performance (%)
1Thomson Reuters CorpTRI-N120.0859.39.2953.65.81.448.445.1
2Robert Half International IncRHI-N110.1612.823.1128.443.91.466.772.9
3Deere & CoDE-N348.16111.418.0107.029.21.231.926.9
4Ferguson PLCFERG-N153.4333.820.9114.324.21.63529.5
5Pentair plcPNR-N73.40512.523.930.321.41.140.636.1
6Caterpillar IncCAT-N193.58107.520.5113.125.52.310.15.2
7C.H. Robinson Worldwide IncCHRW-Q94.2612.516.685.048.32.21.70.97
8CSX CorpCSX-Q35.2278.921.734.424.31.113.913.9
9Norfolk Southern CorpNSC-N277.1365.623.237.813.81.612.313.2
10Parker Hannifin CorpPH-N300.7439.820.440.816.51.48.57.6

Source: Trading Central

Topping our list is Canada-based Thomson Reuters Corp., which has a dual listing in Canada and the United States and provides business information services worldwide. The company has the lowest P/E on our list at 9.2 and the highest EPS growth rate of 953.6 per cent last quarter compared with the same quarter a year ago. Its share price has been in a well-established uptrend since August, 2020, and has not closed below its 20-week moving average since then.

Deere & Co., the maker of farm and construction equipment, has the largest market capitalization on our list at US$111-billion. The stock price has gained more than 120 per cent since breaking a two-year high back in August, 2020, but has since pulled back just more than 12 per cent from its most recent record high of US$397 a share. Even with the strong price, the company’s P/E sits at 18, below the average on our list.

C.H. Robinson Worldwide Inc. provides transportation and logistics services. The company reported revenue growth of 48 per cent last quarter compared with the same quarter last year, which is the largest increase on our list. C.H. Robinson also has the second-highest dividend yield at 2.2 per cent.

The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Trading Central in respect of the investment in financial instruments. Investors should conduct further research before investing.

Gary Christie is head of North American research at Trading Central.

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