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Industrials: Weak Commodity Prices Weigh

Despite short-term headwinds, not many companies are trading at material discounts to our fair value estimates.

Eric Anfinson
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  • The industrials sector slightly underperformed the market in the third quarter, and the sector is trading at a 5% premium to our fair value estimates. That said, a few companies on our list present opportunities for investors, including  WESCO International (WCC),  United Technologies (UTX), and  Chicago Bridge & Iron (CBI).
  • Demand for agricultural equipment and machinery has softened due to weakened crop prices. North American buyers lack interest at current prices, and many have been able to delay replacing exhausted equipment fleets. Farm income has dropped in many European nations, and uncertainty arising from Brexit has lessened the urgency to make large purchase orders.
  • Rail traffic throughout North America continues its yearlong weakness. Total traffic year-to-date is down approximately 7%, with both intermodal units and carloads lower than in the previous year. As volume headwinds persist, freight haulers have focused on maintaining profitability through incremental price increases and managing labor costs.

 

Eric Anfinson does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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