We view the industrials sector as slightly overvalued on average, with a market capitalization-weighted price/fair value estimate of 1.10, representing our belief that industrials stocks are about 10% overvalued as whole. That said, we do see value in select stocks, with some value concentrated in aerospace and automotive shares.
Industrial activity is plowing forward. North American transports are hauling more freight than in the year-ago period, and industrial indicators remain firm.
U.S. housing demand continues to improve, in line with our midterm projections for expansion. Auto sales remain robust, though we view U.S. light-vehicle sales as having leveled off and likely to decline modestly in each of the next few years. In our view, global auto demand is adequate to fuel healthy performance as automakers refine their operations.
M&A activity continues among industrials. Major sector transactions announced this year include Intel's (INTC) $15 billion acquisition of auto supplier Mobileye(MBLY), GM's (GM) sale of much of its European business, Johnson Controls' (JCI) $2 billion sale of its Scott Safety business to 3M(MMM), and Wood Group's GBP 3 billion takeout of Amec Foster Wheeler(AMFW).
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