Skip to Content
Quarter-End Insights

Industrials: Baking In Too Much Optimism

Sector fundamentals are unexciting and valuations are elevated, but a few names show promise.

Mentioned: , , , ,
  • The industrials sector has outperformed the broader market thus far in the fourth quarter, and rising valuations keep most industrials in fairly valued to slightly overvalued territory, especially in the U.S. As a whole, the sector is trading at roughly a 7% premium to our fair value estimates. That said, a few companies on our list present opportunities for investors, including  Kion Group (KGX),  Stericycle (SRCL), and  Fiat Chrysler (FCAU)
  • U.S. auto sales may be done growing on a full-year basis for this cycle, but we remain upbeat on demand. Even if sales fall considerably from the mid-17 million unit level--to 16 million, for example--that's still a healthy level for profitability across the supply chain.
  • New single-family home construction remains healthy, and we project new single-family starts will increase more than 6% this year. Homebuilder and building materials companies should continue to benefit from increased new-home demand.
  • Rail traffic throughout North America remains lackluster. Total traffic year-to-date is down about 5%, with both intermodal units and carloads under pressure. That said, intermodal container demand should see improvement in the year ahead, and we continue to believe intermodal is the key secular volume growth driver for the rails, with help from truck-to-rail conversions.

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

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.