Industrial Sector
Overview
Nicholas Brega
Timothy Duffany
Steve Barone
Peter Wall
Dustin Broughton
Earnings Expectations:
We believe that the expansion of the international economy will be one of the driving factors in the growth of our sector. China is quickly becoming a world superpower, economically, and the majority of the industrial companies have begun to exploit this opportunity. Aside from the exponential growth of developing companies, there are also huge growth opportunities for the Industrials sector in the rebuilding of places such as the Southern United States and Iraq. Many of the companies within the Industrials sector are either earning government contracts to clean these areas up or working through private investors to rebuild these areas. An additional driving force for the Industrials sector is the large amount of current and future government spending on defense. The aerospace and defense sub-sector comprises 21.2% of the industry and they have been receiving many long-term contracts worth billions of dollars recently. Due to all the factors listed above we see tremendous growth for the Industrials sector.
Long-Term Risk:
Although we believe that the Industrials sector has tremendous upside, it is important to note the risks associated with this industry. The rarities of metals used in many of the products produced in this industry are causing the cost of goods produced to rise. Also, like the market as a whole, the Industrials sector is subject to the normal market risks as well as the risks associated with a rise in interest rates. The government is also an area for volatility within the industry. The aerospace and defense sub-sectors are reliant on the government for a majority of their revenues, and if the government chooses to cut their allocation of funds to these companies, than the industry as a whole will be affected.
Growth Investing Opportunities
This sector seems to have great potential for growth; however the growth will be selective relying on product innovation and the ability of individual firms to grab a hold of market share. Governments are becoming more focused on defense, allotting more money towards their defense budgets. Automobiles, aircrafts, and rail are demanding innovation as more fuel efficient machines are being demanded due to both technology advancement and the price of fuel increase at greater speeds than ever seen. Infrastructure is being established at record paces. The population and infrastructure growth being seen now and what is predicted for the future will only push this sector onto a larger scale as it mostly serves the essential needs of people for shelter, national defense, day to day travel, transporting of goods both globally and domestically, and technological advances that assist every day life. Growth within this sector is inevitable; the companies that will reap the benefits from this will do so by adjusting to the change in the global market and incorporating technological advances within their products and services.
Value Investing Opportunities
“Average, steady returns” seem to be the sector trend with no implications of extraordinary growth. However, it is difficult to predict the future for the industrials sector because of several inconsistent economic factors such as energy costs, the price of gasoline, an increase in raw materials prices, and warfare strategies. The restoration approaches involving recent natural disasters also play a big part within the construction and machinery companies. On a positive note, globalization, specifically to the Asia-Pacific region is becoming an emerging movement concerning many companies within the sector.
While we believe several industrial sub-industries will soon experience downturns or slower growth (for example, the airline industry), we also see opportunities in groups where businesses are starting to recover, or in those that will have extended periods of earnings growth. We are currently positive on segments of the industrials group that perform well in the late stages of an economic expansion, such as building products and construction.
Industry Breakdown
There are 53 companies in a variety of sub sectors that make up the industrial sector.
Industry Breakdown / Percentage of Industrial SectorIndustrial Conglomerates / 32.3%
Aerospace & Defense / 21.2%
Machinery / 14.1%
Air Freight & Logistics / 8.8%
Commercial Services & Supplies / 8%
Road & Rail / 5.2%
Electrical Equipment / 4.2%
Diversified Consumer Services / 2.1%
Building Products / 2.0%
Airlines / 1%
Construction & Engineering / .6%
Trading Companies & Distributors / .5%
Recommendation and Suggestions for the Industrial Sector
Faculty Advisor: Murat Aydogdu ()
We found Murat very helpful in all aspects of the projects. He was able to offer us suggestions as to which stocks to pick and the key statistics in which were most important. Murat also proved to be a valuable resource in the proofreading process.
Valuable Resources
Fmc.bryant.edu/~dlouton/f450 (articles)
Finance.yahoo.com
Research Insight
Market Line
Value Line
Mergent
Reuters Kobra and Power Plus Pro
Thomson One Analytics
Hoovers.com
Spdrindex.com
Stocks in Current Portfolio
General Electric, 3M Co., Honeywell International, Southwest Airlines, UPS, Deere & Co.
Stocks to Reconsider
USG, Tasr, Boeing, Caterpillar, Fed Ex, Emerson Electric