In this piece, we will take a look at the ten best industrial machinery stocks to invest in. If you want to skip our overview of the industrial sector, then you can skip ahead to the 5 Best Industrial Machinery Stocks to Invest in.
The industrial machinery industry is one of the most capital intensive in the world. Setting up a firm that makes these machines is not an easy task, and it often requires years of expertise and hefty amounts of capital which until very recently were only available to sizeable nation states such as the United States and the Soviet Union.
Over the course of time, these companies, which often trace their roots back to the industrial boom in the U.S. during the second world war, have become private entities. At the same time, the high barriers of entry mean that not only are the top industrial machinery stocks among some of the most advanced companies in the world but also that these firms enjoy the comfort of economies of scale that are hard to compete with.
As an example, consider some of the most valuable industrial machinery stocks in terms of market capitalization. A couple of such firms are General Electric Company (NYSE:GE), Illinois Tool Works Inc. (NYSE:ITW), and Eaton Corporation plc (NYSE:ETN). General Electric, makes and sells some of the most advanced machines in the world. These include jet engines which are the backbone of the U.S. Air Force and nuclear reactors. These reactors are some of the most exacting engineered products on the planet due to the high stress environment in which they operate and the extreme catastrophe that awaits them should even the slightest thing go awry.
Similarly, Eaton plays an integral role in the global aviation supply chain. An average jet engine for a commercial airliner can contain as many as fifty thousand individual components, from high precision crystal fan blades to pipes, pumps, and hydraulic motors. All of these have to be kept in prime condition, and they are built to a standard that not many firms can achieve.
However, unlike high growth technology stocks, industrial machinery stocks are more down to Earth. Like their technology peers, their performance depends on interest rates since funding pricey manufacturing plants and other equipment requires loans. Similarly, the rosier the economic outlook is, the better industrial machinery stocks fare on the stock market since the demand for their products is assumed to be stable.
As an illustration of this aspect of industrial machinery stock performance, consider the shares of General Electric and Eaton. They bled as much as 51% of their share price value on the stock market after the coronavirus lockdowns were put into place, as investor outlook for the global economy darkened.
But what about recent stock performance? After all, investor expectations of an easing in interest rates could also generate tailwinds for industrial machinery stocks. 2024 has seen investors start off the year on an optimistic note for rate cuts, but settle with the knowledge that the Fed might take longer than they would like. Year to date, both GE and Eaton are up by 39% and 31%, respectively, with GE enjoying slightly higher returns in the wake of its announcement that it will split into two companies.
Analyzing industrial machinery stocks means that investors have to focus on their product portfolio and the potential to both reduce costs (often dubbed as 'improving margins') and gain market share. Both these themes were also present during the latest full hedge fund investor letter cycle which was for the fourth quarter of 2023.
General Electric - Industrial conglomerate General Electric (GE) was the top performer for the year. We exited this multi-year investment as its price went above our appraisal. In 1Q23, GE spun out GE Healthcare, which we sold as it traded at our value. The share price continued its strong performance throughout the spring and summer, and we ultimately sold the position in the third quarter when we no longer saw a margin of safety for the business. CEO Larry Culp was a great partner who created significant value for shareholders by reducing leverage, cutting costs, streamlining operations, improving company culture and simplifying the structure with plans to split the company into three businesses. We hope to have the opportunity to partner with him again in the future.
Artisan Partners was more detailed in its coverage of Xylem Inc. (NYSE:XYL) when it shared:
Xylem is a global leader in water technology across pumps, smart meters and treatment services. More than 80% of the company’s sales come from markets where it maintains the No. 1 or No. 2 market position. Xylem’s pumps business (selling primarily to utilities) is a sticky and profitable operation that provides capital to invest in more innovative solutions, such as smart meters. In mid-2023, Xylem completed the acquisition of Evoqua, giving it a leading position in the US water treatment business. We believe the company is at the start of a compelling profit cycle. Smart meter sales are recovering from supply chain issues, cost and revenue synergies from the acquisition are in the early innings, and a newly hired (and well- respected) CFO should help catalyze long-awaited margin expansion. Meanwhile, rising demand for solutions to water sustainability challenges should persist as a strong trend for years to come.
Seems like smart money is, like always, aware of broader trends that could be helping industrial machinery stocks set themselves up for years of growth. Consequently, we decided to take a look at some such stocks and the notable names were Eaton Corporation plc (NYSE:ETN), General Electric Company (NYSE:GE), and Parker-Hannifin Corporation (NYSE:PH).
10 Best Industrial Machinery Stocks to Invest in
A factory floor filled with specialized drug manufacturing machinery and workers.
Our Methodology
To make our list of the best industrial machinery stocks, we ranked the most valuable specialty industrial machinery and heavy machinery stocks by the number of hedge funds that had bought the shares during Q4 2023 and picked out the top stocks.
For these best industrial machinery stocks, we used hedge fund sentiment. Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here). That’s why we pay very close attention to this often-ignored indicator.
Otis Worldwide Corporation (NYSE:OTIS) is a large American special industrial machinery company headquartered in Farmington, Connecticut. It primarily makes and sells elevators. The firm scored a major win in March 2024, when it was awarded a ten year contract to service the Burj Khalifa.
During 2023's fourth quarter, 38 out of the 933 hedge funds profiled by Insider Monkey had bought Otis Worldwide Corporation (NYSE:OTIS)'s shares. Terry Smith's Fundsmith LLP was the firm's biggest investor due to its $576 million investment.
Just like General Electric Company (NYSE:GE), Eaton Corporation plc (NYSE:ETN), and Parker-Hannifin Corporation (NYSE:PH), Otis Worldwide Corporation (NYSE:OTIS) is a top industrial machinery stock that hedge funds are piling into.
PACCAR Inc (NASDAQ:PCAR) makes and sells heavy duty trucks for farming and construction. Its shares have been performing well so far this year, and as the first quarter ends, the stock is up by 28% year to date. Overall, the firm has beaten analyst EPS estimates in all four of its latest quarters, and the shares are rated Buy on average.
After digging through 933 hedge fund Q4 2023 portfolios, Insider Monkey found that 38 had bought the firm's shares. PACCAR Inc (NASDAQ:PCAR)'s largest hedge fund shareholder is Ken Fisher's Fisher Asset Management as it owns $479 million worth of shares.
Cummins Inc. (NYSE:CMI) is a sizeable American firm that sells industrial grade engines and associated products. The firm has been struggling on the financial front as of late, as it has missed analyst EPS estimates in three out of its four latest quarters. Its investors were in for a nice deal earlier this month, through a share exchange offer that could have allowed them to swap their shares for a discount.
By the end of last year's fourth quarter, 39 out of the 933 hedge funds profiled by Insider Monkey had invested in Cummins Inc. (NYSE:CMI). Ken Fisher's Fisher Asset Management was the biggest investor as it had invested $619 million in the company.
Rockwell Automation, Inc. (NYSE:ROK) is one of the biggest industrial machinery companies in the world. It makes and sells sensors and other products for industrial automation. The firm showed off its new customer center in Singapore in March 2024, dedicated to targeting Asian firms and their needs for industrial automation.
As of December 2023 end, 43 out of the 933 hedge funds covered by Insider Monkey's research were the firm's investors. The largest Rockwell Automation, Inc. (NYSE:ROK) hedge fund shareholder is Ken Fisher's Fisher Asset Management through its $179 million stake.
Caterpillar Inc. (NYSE:CAT) is the well known American company that makes and sells some of the biggest mining and construction machines in the world. The shares are rated Buy on average, and the average share price target is $366.
48 out of the 933 hedge funds covered by Insider Monkey's Q4 2023 research had held a stake in Caterpillar Inc. (NYSE:CAT). Ken Fisher's Fisher Asset Management was the biggest investor as it owned 8.1 million shares that were worth $2.4 billion.
Caterpillar Inc. (NYSE:CAT), Eaton Corporation plc (NYSE:ETN), General Electric Company (NYSE:GE), and Parker-Hannifin Corporation (NYSE:PH) are some top hedge fund industrial machinery stocks.
