Top Industrial Stocks for 2021: Here Are Some of the Best Industrial Stocks to Put On Your Watchlist
The industrial sector is a behemoth of an investing category that includes a wide variety of companies that may not seem to fit in the same investing universe.
Consider that logistics and shipping giant FedEx (FDX) is a major industrial stock, as well as construction equipment company Caterpillar (CAT). But glass company Corning (GLW) and airline stalwart Delta Airlines (DAL) fit into this broad category as well.
These very different companies fall into subsectors of the broader industrial sector—which can include aerospace, commercial and professional services, industrial machinery, etc.—because they offer key elements that define the sector, including manufacturing, transportation, and commercial services.
With such a broad group of stocks in the industrial sector, it’s no surprise that many investors are drawn to its outsized opportunities. And while investors can certainly find good long-term investments here, they should also know upfront that the industrial sector can be very cyclical and companies are often dependent on large sums of capital to get new projections up and running.
Still, the industrial sector offers a unique angle to benefit from when the economy is booming and services are in high demand. And with the U.S. economy emerging from the coronavirus pandemic and the Biden administration looking to spend billions of dollars in new infrastructure construction in the coming years, now could be a great time to consider buying industrial stocks.
Below are a mix of industrial stocks that are either very established in their industry or growing so fast that investors should pay attention to them—and all of them have share price gains that are trending higher than the S&P 500 over the past five years (as of Aug. 27, 2021).
5 Top Industrial Stocks
Here are the best 5 industrial stocks in 2021.
Waste Management (NYSE: WM)
- Waste Management (NYSE:WM)
- Market Cap: 65,325,083,991
Waste Management is knee-deep in North America’s waste business—and that’s been a very good thing for the company and its investors.
The company says it serves more than 20 million residential and industrial customers for waste collection, transfer, recycling, and disposal.
In the second quarter of 2021, revenue jumped nearly 26% from the year-ago quarter, thanks in part to the company’s $4.6 billion acquisition of Advanced Disposal. Waste Management’s adjusted operating earnings before interest, taxes, depreciation, and amortization (EBITDA) increased by 28% and the company generated more than $1 billion in cash from operations.
The company holds about 34% of the waste management market in the United States (its closest competitor has just 20%). When you combine this strong position with the company’s impressive growth, it’s no surprise that Waste Management’s stock has climbed 141% over the past five years, outpacing the S&P 500’s gains of 108%.
Louisiana-Pacific Corp. (NYSE: LPX)
- Louisiana-Pacific (NYSE:LPX)
- Market Cap: 6,222,060,567
Louisiana-Pacific (LP) manufactures and sells a variety of building materials including siding, engineered wood products, laminated veneer lumber, Oriented Strand Board (OSB), and much more.
The company is emerging strong from the pandemic and in the most recent quarter (reported on Aug. 3, 2021) the company’s sales skyrocketed more than 140% to a record high of $1.3 billion and adjusted EBITDA reached a new high of $684 million. In fact, the company’s sales growth exploded in the first six months of 2021, more than doubling revenue from the same period in 2020.
Some of those impressive percentage growth rates come as the company experienced a slowdown in sales at the height of the pandemic, but LP is optimistic that the third quarter of 2021 will still result in impressive EBITDA of $530 million—which would be its second-highest quarter after setting a new record with its second-quarter 2021 results.
One thing investors will be fond of with this stick is the fact that LP’s price-to-earnings ratio is just 5.4 right now, making its shares cheaper relative to other industrial stocks. Additionally, the company’s share price has more than doubled the S&P 500’s gains over the past five years.
Deere & Company (NYSE: DE)
- Deere & Company (NYSE:DE)
- Market Cap: 118,133,423,118
Deere & Company may be one of the most well-known agricultural equipment companies in the world, and as one of the leading manufacturers in this industry, it’s no wonder investors have been drawn to Deere’s stock.
Deere has experienced very impressive growth recently, with sales spiking 29% in the third quarter of 2021 and earnings more than doubling compared to the year-ago quarter—both of which beat analysts’ consensus estimates. The results were so good that Deere’s management raised its net income outlook for the full year to $5.8 billion, at the midpoint of guidance.
“Looking ahead, we expect demand for farm and construction equipment to continue benefiting from favorable fundamentals,” Deere CEO John May said in a press release.
The company said that rising crop prices are helping to drive sales of its equipment. Additionally, the infrastructure bill that’s currently making its way through Congress could boost equipment sales as well.
Investors are excited about the direction the company is headed in, as well its long-term growth potential, and have driven Deere’s share price up more than 3X compared to the S&P 500 over the past five years.
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Generac Holdings Inc. (NYSE: GNRC)
- Generac Holdings (NYSE:GNRC)
- Market Cap: 27,943,529,020
Generac Holdings has its hands in multiple energy equipment products, including generators and energy storage systems for renewable energy, residential, commercial, and industrial uses.
Generac reported record-breaking sales and adjusted earnings in the second quarter of 2021 and operating income more than doubled, in part because of the company’s stellar rebound from a difficult 2020 year.
But investors should also consider Generac’s long-term potential. The company’s core products, its generators, and clean energy storage are both increasingly in demand. Frequent storms, power outages in the United States, and more people working from home are driving power generator demand.
Generac CEO Aaron Jagdfeld said on the second-quarter earnings call that home standby generators are “becoming more mainstream as homeowners have an increasing awareness of the need for power security as they are working, learning, shopping, entertaining and in general, spending more time in their homes.”
The company opened a new generator manufacturing plant in South Carolina in 2021 and says that Generac is on track to double its current build rates by the second quarter of 2022. Generac’s management also said demand is currently surpassing supply for its clean energy products and that it expects clean energy shipments to nearly double compared to the previous year.
And while the past performance of any stock is in no way an indicator of how well a company’s share price will perform in the future, Generac’s share price has soared more than 1,000% over the past five years. And with the company tapping into clean energy trends and the growing need for power generators, the stock could see more growth in the coming years.
Caterpillar (NYSE: CAT)
- Caterpillar (NYSE:CAT)
- Market Cap: 115,762,841,697
As the largest manufacturer of heavy equipment in the world, and boasting a market cap of nearly $117 billion, Caterpillar is a massive force in the industrial sector. The company has more than 300 industrial machine products, in addition to the equipment parts and power systems that it sells.
Like other industrial stocks, last year was not kind to Caterpillar’s business. But the company is rebounding in 2021 and in the most recent quarter (reported on July 31, 2021), the company’s sales increased by 29%, and operating profit spiked by 128%.
Caterpillar’s CEO, Jim Umpleby, said on the second-quarter earnings call that “Overall, we’re becoming more optimistic about our end markets since our last earnings call. We’re pleased that many end markets continue to improve, and demand continues to strengthen. Global demand is strong, and the outlook is positive.”
While the company will have to manage supply chain issues that nearly every industry is facing right now—especially the semiconductor industry—there is a worldwide infrastructure tailwind that could help Caterpillar grow over the next few years.
A recent Wall Street Journal article put it best, saying, “Emboldened by ultralow interest rates and the need to begin addressing climate change, leaders in these countries are beginning to think big again on infrastructure, energy and other public works.”
Investors may also be interested in Caterpillar’s growing dividend as well. The company recently increased its quarterly dividend and is considered a Dividend Aristocrat, with more than 27 consecutive years of increases. The company’s current dividend yield is 2.07%.
Industrial Sector Exchange-Traded-Funds
While there are many great publicly traded industrial companies, it can be overwhelming for some investors to select individual companies from the vast U.S. stock market.
Fortunately, investors don’t have to handpick industrial tickers from the Nasdaq or the New York Stock Exchange (NYSE) if they don’t want to. There are nearly 30 industrial stock exchange-traded funds (ETFs) that allow people to invest in a basket of industrial companies all at once.
ETFs can be a great way to gain exposure to a sector without the same level of volatility you would get from owning an individual stock.
While there are far too many industrial ETFs to cover here, investors may want to start by looking at SPDR S&P Kensho Smart Mobility ETF (HAIL), Invesco Dynamic Building & Construction ETF (PKB), and First Trust RBA American Industrial Renaissance ETF (AIRR). These three ETFs are some of the top-performing in the industrial sector over the past year.
Frequently Asked Questions
Here are some of the most frequently asked questions on industrial stocks.
What are the best industrial stocks to buy?
There are many industrial stocks that could make great long-term investments. The two best-performing industrial stocks from the list above are Generac Holdings and Deere & Company, which have returned over 1,000% and 338%, respectively, over the past five years.
What’s considered an industrial stock?
The industrial sector covers a broad number of industries including companies that are divided into subsectors such as aerospace and defense, airlines and logistics, building products, commercial and professional services, construction equipment, transportation, and industrial machinery.