Skip to Content
Quarter-End Insights

Industrials: Pockets of Uncertainty Present a Few Opportunities

Industrials are the second-most-expensive sector we cover, but these picks can reward investors.

Mentioned: , , , , , , , , ,
  • Industrial stocks climbed higher over the past quarter and currently look rich, with our sector price/fair value estimate at 1.09. In other words, we believe the sector trades at a 9% premium to our fair value estimates. We view industrials as the second-most-expensive sector in our coverage, but we believe  Stericycle (SRCL), Babcock (LSE: BAB), and  General Electric (GE) can reward investors.
  • Industrial activity continues to look healthy, with consistent growth and new orders across the globe. The Institute for Supply Management's Purchasing Index for U.S. manufacturing has not dropped below 58 since June, the National Bureau of Statistics in China reported a PMI around 52, and the IHS Markit Eurozone PMI output and manufacturing indexes are at about seven-year highs.
  • Negotiations surrounding NAFTA have been a focal point for the auto industry, and ending the agreement would likely produce negative consequences. The auto sector is a highly integrated supply chain, with parts sometimes crossing a NAFTA border as many as eight times before final assembly. Tariffs or additional taxes may lower demand and negatively affect the job market.
  • Business-to-business industrial distributors increasingly rely on e-commerce and technology to generate sales and day-to-day business operations. We believe the growing market presence of online wholesalers will change customers' preferences and expectations, and many incumbent distributors must adapt to remain competitive. Still, we believe many of the industrial distributors we cover are fairly insulated from online competition because most of them serve niche markets and sell more specialized products that require technical expertise.


Eric Anfinson 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.