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Quarter-End Insights

Industrials: China Shows Signs of Softening, but the Sector Remains Healthy Overall

U.S. job creation could become more of a concern later on, but we still see some bargains across our global industrials coverage.

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  • Industrial stocks were about 10% overvalued in our first-quarter report, and this ratio has declined slightly, with our sector coverage's market price/fair value estimate ratio at 1.07. Our fair value estimates have increased on some names, partly due to a new department-wide tax policy, where we model the U.S. statutory corporate rate falling to 25% from 35% in 2018.
  • Industrial activity still looks healthy with expansion levels of the Institute for Supply Management's Purchasing Index for U.S. manufacturing and solid freight volumes.
  • U.S. auto sales almost certainly peaked in 2016, but current U.S. levels are nowhere near recessionary, and sales in China and European registrations are still up year over year.
  • Millennials' homebuying is causing surging demand for housing at the lower end of the pricing spectrum.

David Whiston 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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