The market’s recent focus on technology giants has led to relatively narrow growth. Record highs in indices have been due to a small group of companies outperforming. However, analysts note that growth is starting to broaden. This implies that sectors that have been less prominent stand to see outsized gains this year.
In particular, the industrial sector has advantages that could make it the leading growth area going forward. U.S. industries have significantly invested in increasing domestic production. Also, there have been increased incentives for infrastructure and sustainability investments. And last year, the sector faced pressure from higher interest rates. However, expected easing from the Federal Reserve later this year may help reduce capital costs and provide further impetus.
The Federal Reserve estimates that second-quarter GDP growth will be at an annualized 3.1% this year, supporting domestic demand. With strong anticipated economic expansion, some industrial stocks, including the following industrial stocks to buy, are well-positioned for sky-high growth this year.
Carpenter Technology Corp (CRS)
Carpenter Technology Corp (NYSE:CRS) is an industrial stock to consider buying. The specialty alloy producer focuses on the aerospace and defense industries. Its stock price has more than doubled in the last year, pushing its price-to-earnings (P/E) ratio higher relative to indexes (39.6x versus 26.9x of the DJIA). However, the company’s positioning makes it attractive.
Strong growth in the aerospace industry benefits Carpenter Technology. Both Airbus (OTCMKTS:EADSY) and Boeing (NYSE:BA) plan to increase flagship aircraft production in the coming years. This significantly aids Carpenter Technology due to high fixed costs and narrow margins.
As demonstrated over the last year, the company’s revenue increases have caused substantial profit boosts. A 15% revenue rise changed $49.2 million in losses to $56 million in profits. Continued growth implies near-doubling of profits. Management expects even faster profit increases following the guidance raise of last quarter. Nearly 20 times net cash flow growth occurred over the previous year, enabling dividend and buyback increases.
Owens Corning Inc (OC)
Owens Corning (NYSE:OC), a building and construction products company primarily known for its glass production, exemplifies industrials’ challenges and why they could rebound.
The company relies heavily on the domestic U.S. housing market, which has faced substantial pressure from higher mortgage costs. However, when interest rates decline, the housing market is expected to rebound and provide strong growth potential for the company. For now, Owens Corning appears to be a bargain.
OC trades at a P/E ratio of just 14.3x, which is half the average of the DJIA and almost a third of the average P/E of the industrial sector at 30.1x. Analysts have become increasingly optimistic about the company, with a substantial majority now recommending buying OC stock, confident by the company’s consecutive EPS beats. Of 23 analysts, 15 recommend either a buy or a strong buy from just seven before.
As more analysts jump in because prices still lag behind the industry average despite consecutive EPS beats, OC is another industrial stock to buy to catch up with rivals.
Old Dominion Freight Line (ODFL)
Transportation company Old Dominion Freight Line (NASDAQ:ODFL) operates in the less-than-truckload (LTL) shipping sector. It generates revenue from consolidating freight and logistics solutions. As the economy and industrial production continue growing, transportation needs naturally increase.
Old Dominion has seen continued revenue growth, increasing 5.6% in May, primarily through pricing adjustments. By consolidating freight rather than direct shipping, the company may avoid some impacts of higher fuel prices that competitors face.
Currently trading at a P/E ratio of 29.7x, it is broadly consistent with the broader market as represented by the S&P 500 index at 27.8x. Growth estimates for the current quarter stand at 12.10% and for the next quarter at 5.80%.
Also, analyst projections indicate an average price target of $207.29, representing a potential 14% upside. In April and May, ODFL stocks received two rating upgrades from neutral to outperform and from sell to hold. Therefore, this suggests analysts believe it may be one of the top industrial stocks to buy.
On the date of publication, Stavros Tousios did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
