Industrials: Despite Bullish CEO Talk, Few Values
Among a mostly fairly valued industrials sector, some good values remain.
At a recent industrials conference in Florida, CEOs consistently preached macroeconomic bullishness, and nearly all expressed a near-uniform commitment to share buybacks. Implicit in these endorsements is that the underlying stocks of their companies are cheap. Even so, in aggregate, we find few bargains in industrials. Currently, the market-cap-weighted price/fair value estimate for the sector stands at 1. Fundamentals, however, remain attractive. Honeywell International (HON) CEO Darius Adamczyk said he’s "quite bullish on 2018, 2019 and to the extent he can see 2020," and added that "overall, the markets look very, very good, almost without exception." Honeywell has the advantage of several long-cycle businesses in its portfolio. Adamczyk said that he observes Honeywell’s aerospace backlog increasing, as well as healthy order activity from some of its technology and automation offerings. Representatives for 3M (MMM) were also enthusiastic about certain newer, innovative offerings, particularly in the data center space, which we also see also as a faster-growing line of business. 3M's immersion cooling, which allows data center companies to dip their electrical components into a nonconducting liquid to prevent overheating, is the latest response to this rapid growth.
Joshua Aguilar does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.