Key points
- Industrial stocks have led the way lately; the macroeconomic trends identified by Wall Street justify a higher ceiling in the future.
- Three stocks top the list, all following the same trend in their own ways.
- Analysts love them, and institutions continue to buy them through price target increases.
- 5 stocks we prefer to JPMorgan Chase & Co.
Jumping on the next market trend is easier said than done. However, there is a simple and logical way to find the next winning sector in the market. By tracking exchange-traded fund (ETF) activity, you can spot changing monetary tides before the opportunity passes you by.
As the US economy prepares to turn around this year, thanks to the Federal Reserve (Fed), industrial stocks are starting to attract an influx of buyers. You can see it in real time by tracking the SPDR fund for selected industrial sectors NYSEARCA: XLI which increased by 26.6% in the last twelve months. But that is not all.
Heading into the month mark, this ETF outperformed the broader S&P 500 by as much as 2%. Leading the way in this ETF are three core holdings, which include names like General Electrical NYSE:GE, Caterpillar Inc. NYSE:CATand even Uber Technologies Inc. NYSE:UBER. Each of these has its own story that pushes towards a bull case.
Industrialists are the place to be
Within their report on the macroeconomic outlook for 2024, analysts at The Goldman Sachs Group Inc. NYSE:GS have expressed their bullish view on the manufacturing sector of the US economy. You should understand their clear reasoning before making your stock selection.
The Fed is looking to cut interest rates this year, although the timing and size of those cuts are still up for debate. You can use the FedWatch tool offered by CME Group Inc. NASDAQ: ECM to get an idea of when traders expect these cuts to occur. Currently, expectations are for a cut around the June 2024 Fed meeting.
Interest rate cuts will weaken the dollar, making it cheaper compared to international currencies such as the euro or yen. As a result, American exports become more attractive because these foreign nations can purchase more of them with less currency.
This may be why February ISM manufacturing PMI data prompted a 6.4% jump in export orders. This is a level that investors have not seen in the last two years. The situation is now evident and industrial companies must be on alert to respond to the production demand brought by these new orders.
At the top for a reason
The top three holdings in the industrial ETF are the companies mentioned above. However, there has to be a reason (aside from a stellar performance) why they made it to the top of the list. Although they operate in different industries, they are all connected by the same trend.
General Electric operates in the renewable energy sector, producing and creating the infrastructure necessary for this industrial revolution. Oil prices are set to rise as lower interest rates will increase demand for domestic manufacturing products and the need to export them abroad.
Specifically, Goldman expects to see prices per barrel reach $100 this year. More expensive oil and fuel make renewable energy a more attractive proposition, which is why analysts at Jefferies Financial Group Inc. New York Stock Exchange: JEF they raised their price targets on the stock to $195 per share, expecting a 12% upside.
The double-digit rise for a giant with a market capitalization of $190 billion is no nonsense. Earnings per share (EPS) are also expected to increase by 29% over the next 12 months, all inclusive.
More expensive oil also means more expensive food and transportation costs. This is where Uber comes in. Now that manufacturing employees will likely be working overtime to fulfill demanding orders, getting to and from work can be made easier with Uber.
The analysts of UBS Group New York Stock Exchange: UBS it expects EPS growth of 68% this year and sees a valuation of up to $96 per share. UBER stock would need to rise 23% to prove these targets correct, and a recent $7 billion buyback announcement does the trick.
Last but not least, Caterpillar steps in to allow the expansion of new manufacturing sites so these industrial names can do their jobs. There’s also an impending boom in U.S. residential construction After the National Association of Realtors (NAR) decided to cut agent commissions, you can bet that real estate demand will explode.
Riding the multiple tailwinds needed by the US economy, Caterpillar analysts say Truist Financial Co. New York Stock Exchange: TFC see a price target of up to $390 set in March. This is above the February price target set by JP Morgan Chase & Co. New York Stock Exchange: JPM of $385.
Both are up 11% and 10% respectively, and Fisher Asset Management is justified in increasing its position in the stock by 2.2% in March. This transaction represents an purchase of approximately $53 million.
Before you consider JPMorgan Chase & Co., you’ll want to hear this.
MarketBeat tracks daily Wall Street’s highest-rated and best-performing research analysts and the stocks they recommend to their clients. MarketBeat identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market takes hold… and JPMorgan Chase & Co. wasn’t on the list.
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View the five stocks here
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