We recently compiled a list of the 10 Best Industrial Machinery Stocks to Buy Now.In this article, we are going to take a look at where Illinois Tool Works Inc. (NYSE:ITW) stands against the other industrial machinery stocks.
Industrial stocks form the backbone of the American economy, encompassing companies that manufacture and maintain equipment used in the construction and manufacturing markets, such as compressors, turbines, and hydraulic systems. Their presence in the Dow Jones highlights their significance in the market.
According to Global Market Insights, the industrial machinery market, which was valued at $693.7 billion in 2023, is projected to grow at a compound annual growth rate of 7.5% between 2024 and 2032 as a result of the increasing application of automation and smart technologies, which significantly boost efficiency and production. Material handling and robotics are two important industries driving this expansion since they are essential to contemporary industrial operations.
Regionally, the Asia-Pacific area is driving this expansion as per the aforementioned research, with growing industrialization in countries like China and India. In terms of country, the United States is leading the North American industrial machinery market in terms of revenue, with an estimated 2023 revenue of $246.5 billion and a projected 2032 revenue of $402.9 billion. Moreover, North America accounted for 45% of the industrial machinery market in 2023.
Looking ahead, according to Deloitte’s Manufacturing Industry 2024 Outlook, the manufacturing sector is utilizing the Infrastructure Investment and Jobs Act, CHIPS Act, and Inflation Reduction Act to boost growth through improved semiconductor manufacturing and construction. Digital transformation is still essential in spite of economic challenges and a lack of skilled workers. Industrial metaverse capabilities are being integrated into smart factory systems, which are 12% more productive and cited by 86% of manufacturing leaders as essential for competitiveness. A game-changer, generative AI reduces labor restrictions while improving supply chain efficiency and product design.
That said, according to Interact Analysis's Manufacturing Industry Output Tracker (MIO), which Industrial Machinery Digest released on May 30, 2024, the global manufacturing industry is predicted to grow by just 0.6% in 2024, showing stagnation or minor decline in the majority of regions. The study mentioned that China's growth estimate was reduced from 2.8% to 2.4%, pointing out economic issues that may affect its 50% global manufacturing share. Although a slight decline is predicted in 2026 before a consistent rise through 2028, a recovery is projected in 2025 as global conditions improve. While Taiwan, South Korea, and Singapore benefit from the semiconductor resurgence, the United States exhibits stronger manufacturing fueled by rising consumer expenditure and moderating inflation. Challenges include the slowdown in European manufacturing and pressures on the machinery market caused by high loan rates, which increase costs and reduce order intake. High living expenses still limit demand even though post-Covid supply chain problems have decreased.
Adrian Lloyd, CEO of Interact Analysis, made the following comment in Manufacturing Industry Output Tracker (MIO):
“The global outlook for manufacturing output is mixed to say the least. Our projections are holding but there are no clear signs of where recovery will come from and how strong it will be. As a result, we will be watching closely to see how constrained consumer spending in China, a strengthening US economy and global events will affect conditions."
He further added:
"The machinery market appears to be experiencing more challenging conditions than manufacturing overall, as global uncertainty leads to caution around investment in equipment.”
Data from the Federal Reserve in October revealed that U.S. industrial production dropped in September, largely due to reduced factory output influenced by a strike at Boeing Co. and the impact of two hurricanes. Production across factories, mines, and utilities declined by 0.3%, following a revised 0.3% increase in the previous month. However, the industrial sector of the broader market has risen by 22.4% since the beginning of the year.
Methodology:
We sifted through holdings of Industrial Machinery ETFs and online rankings to form an initial list of 20 industrial machinery stocks. Then we selected the 10 stocks that were the most popular among institutional investors. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024, according to Insider Monkey's database. We have used the stock's revenue growth (year-over-year) as a tiebreaker in case two or more stocks have the same number of hedge funds invested.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter's strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here)
A factory in operation, its machinery humming as new industrial products get built.
Illinois Tool Works Inc. (NYSE:ITW) produces and markets industrial equipment and goods both domestically and abroad. Automotive OEM, Food Equipment, Test & Measurement and Electronics, Welding, Polymers & Fluids, Construction Products, and Specialty Products are its seven business segments. The company was established in 1912 and, through innovations and acquisitions, has grown into a diversified industrial firm that responds to consumer demands.
Illinois Tool Works Inc. (NYSE:ITW) has a long history of providing investors with healthy returns. The company has respectable financial metrics, including a growing revenue per share figure, a stable gross profit margin, and a growing return on invested capital. Dividend growth has slowed recently but is still high enough to outpace inflation, as per analysts.
Barclays raised its price target on Illinois Tool Works Inc. (NYSE:ITW) from $215 to $230. In a research note, the analyst informed investors that the company "is hitting its stride again on Enterprise Initiatives, while CBI may be showing some signs of life," based on the earnings performance and outlook.
In Q3 2024, Illinois Tool Works Inc. (NYSE:ITW) raised its dividend by 7% to $6.00 per share annually and repurchased $375 million worth of shares. Moreover, the company raised its full-year GAAP EPS outlook by $1.33 to a range of $11.63 to $11.73 per share.
Tom Gayner's Markel Gayner Asset Management was the company's largest stakeholder at the end of Q2 2024, as per Insider Monkey's database. It owns 327,500 shares worth $85.828 million as of Q2.
Overall ITW ranks 7th on our list of the best industrial machinery stocks to buy now. While we acknowledge the potential of ITW as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ITW but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
