Deere (DE) and CAT stock lead this weekend’s watch list of industrial stocks holding strong amid recent market volatility. Along with DE stock and Caterpillar (CAT), Ingersoll-Rand (IR), Crane (CR) and Ashland Global (ASH) are near a buy point and worth a closer look.
These global growth plays with relatively down-to-earth valuations are outshining pricier growth stocks in a rising interest-rate environment. The improved growth outlook in China and signs the omicron wave could ebb almost as quickly as it crested could lead to the first stretch of synchronized global growth in four years, economists are beginning to think.
After a robust earnings recovery last year, all five of these industrial plays are expected to report double-digit EPS growth in 2022.
The stock market has seen a bumpy start to the year as the Federal Reserve ratchets up plans for rate hikes and a shift from buying bonds to unloading them. Still, it’s been a lot less bumpy for the Dow Jones industrial average, off a slim 1.2%, and the S&P 500, down 2.2%, than the Nasdaq composite, which has lost 4.8%.
Yet CAT stock, a Dow component, and Deere have gotten off to stellar starts, both up more than 10%. That disparate performance suggests rising conviction among institutional investors that worries over inflation and Fed tightening will persist.
Among the watch list stock, CAT, DE, IR and CR all have at least 90 IBD Composite Ratings, a single rating combining both technical and fundamental factors.
Be sure to read IBD’s daily afternoon The Big Picture column to get the latest on the prevailing stock market trend and what it means for your trading decisions.
Prospects for improved growth in China, a key market for Caterpillar, informed Bernstein analyst Chad Dillard’s Dec. 22 upgrade of CAT stock to outperform from market perform with a 240 price target. He also noted that a 10% decline in steel prices amid supply increases could provide a tailwind for profit margins.
Restocking of depleted wholesale inventories and the ramp of infrastructure spending later in 2022 into 2023 further support prospects for sustained growth.
Analysts expect Caterpillar earnings will jump 59% for all of 2021, followed by 19% growth in 2022.
CAT stock has been carving out a 32-week cup pattern since peaking early in June. But after several months below its 200-day average, CAT stock shot higher, clearing the key technical level on Jan. 4.
Aggressive investors might have used that break higher as an early entry point. And while Caterpillar has built on that gain, it’s still within 5% of the 200-day line, hardly extended.
The recent gains have come on high volume, another positive sign.
CAT stock remains about 7% below a 246.79 buy point from the cup base, according to a MarketSmith analysis.
Deere stock has been moving sideways since peaking in early May, having weathered a labor strike and supply-chain challenges. Now the strike is behind it and the agricultural outlook continues to look strong. In reporting fiscal Q4 results on Nov. 24, Deere indicated that production was basically sold out through fiscal Q3.
But what seems to have renewed investor excitement over Deere was the autonomous tractor it unveiled on Jan. 4 at the CES show. The tractor will be ready for scaled production later this year. Baird analyst Mircea Dobre wrote that the tractor could revolutionize farming and lead to a multi-year cycle of equipment upgrades.
After earnings more than doubled in fiscal 2021 ended in October, Deere per-share profit should climb 17% in fiscal 2022.
DE stock was Friday’s IBD Stock Of The Day.
Deere stock closed at 379.56 on Friday, just below a 386.65 buy point from a handle on the end of a 19-week consolidation. Arguably Deere has been consolidating since last May or even last March.
Ingersoll-Rand makes a broad range of compressor, vacuum and blower solutions for industrial customers. Its precision and science technologies segment produces syringe pumps, compressors and fluid management systems. More than 30% of revenue is related to improving water consumption, management or purification. It also produces technologies for carbon dioxide sequestration.
Ingersoll-Rand earnings likely grew 38% in 2021, with Wall Street betting on a 17% gain this year.
The company targets low double-digit annual revenue growth through 2025, assisted by 4%-5% growth via acquisitions.
Ingersoll-Rand stock has found support at its 50-day average recently, though it closed a fraction below that rising moving average on Friday. The stock sits about 4% below a 62.16 buy point from a 5-week flat base. IR stock’s relative strength line is just below a record high, a sign of market leadership.
Crane has carved out leading positions in a number of diversified growth segments, from aerospace to payments in the gaming and retail industries to process flow technology in the chemical industry. It stands to benefit from a recovery in air travel. Last fall, it won a contract to apply its multi-mix microwave technology to a low Earth orbit satellite.
Crane earnings are seen rising 78% for all of last year followed by 13% in 2022.
Crane stock is about 2% below a 108.77 buy point from a 10-week consolidation. It’s already slightly above an early entry of 106.85. Its relative strength line is just below its March peak.
Ashland supplies specialty chemicals to a wide range of consumer-focused markets, from health and beauty, to architectural to life sciences.
Ashland earnings rose 28% in fiscal 2021 ended in September after a 17% gain in a challenging fiscal 2020. Analysts see a 27% pop in 2022.
ASH stock is 5% below a 110.84 buy point from an 8-week flat base. ASH has basically kept pace with the broad market since September 2020, though it’s played catch-up with a nice run since August. Lately, it’s been acting well, finding support at its 50-day average.
Ashland was Thursday’s IBD Stock Of The Day.
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