Behind information technology, industrials take the honor as best performing sector year to date (YTD) in 2019. The highly cyclical sector was among the hardest hit in 2018 from the trade dispute between the United States and China as industrial conglomerates with overseas exposure got caught in tariff war crossfires and talk of an impending recession.
The sector has bounced back on hopes that Washington and Beijing can work together to formulate an agreement that benefits both countries and indeed the global economy. On the recession front, a slow-moving Federal Reserve has considerably reduced the chance of the U.S. economy posting two negative quarters of gross domestic product (GDP) this year – the metric economists use to define a recession.
Several industrial manufacturing stocks have pushed to multi-month highs this week, spurred by an uptick in the Institute of Supply Management's Manufacturing Purchasing Managers' Index (PMI) – a closely watched economic release that monitors changes in manufacturing production levels from month to month. Those who want to play this top performing sector should monitor these three sector heavyweights for pullback trading opportunities.
Illinois Tool Works Inc. (ITW)
Illinois Tool Works Inc. (ITW), with a market capitalization of $48.63 billion, manufactures and sells specialized industrial products and equipment through seven business segments. The Glenview, Illinois-based company exceeded analysts' fourth-quarter earnings estimates by a penny, reporting earnings per share (EPS) of $1.83 over the period. Quarterly results increased by 7.6% on a year-over-year (YoY) basis as a result of benefits from enterprise initiatives and a 3.1% fall in the company's share count. Analysts expect the industrial tool maker to report 2019 fiscal year earnings growth of 4.74%. As of April 3, 2019, Illinois Tool Works stock issues a 2.70% dividend yield and has gained an impressive 18.19% YTD.
The company's share price has advanced over 28% since Dec. 26, placing the stock firmly in bull market territory. A recent cross of the 50-day simple moving average (SMA) above the 200-day SMA, referred to as a golden cross, confirms the bullish sentiment. The price broke above an area of March consolidation on Monday, April 1, making an 11-month high in the process. Traders should look for an entry price at the initial breakout level near $145. Consider placing a stop under last month's swing low and trailing it beneath each higher swing low to let profits run.
Cummins Inc. (CMI)
Cummins Inc. (CMI) manufactures and services diesel and natural gas engines and powertrain-related component products. The Fortune 500 company sells through a network of roughly 600 distributors and 7,600 dealers, generating about half of its sales outside the United States. Cummins reported a 17% increase in YoY fourth quarter sales but projects flat to slightly higher sales growth in 2019, its 100th anniversary year. Despite the mute outlook, independent investment bank Robert W. Baird & Co. upgraded Cummins shares from "neutral" to "outperform." Cummins stock, with a market cap of $25.40 billion and offering a 2.81% dividend, is up 21.95% YTD, outperforming the industry average and S&P 500 by 1% and 7.57%, respectively, as of April 3, 2019.
Cummins shares have entirely reversed their sizable December loss and now trade nearly 8% above the Nov. 30 closing price. Like Illinois Tool Works, Cummins stock made an 11-month high in Monday's trading session before retracing slightly yesterday. Think about going long on a pullback to the $157.50 level, where price encounters support from February's swing high and a trendline stretching back to December's capitulation low. Traders may want to scale out of the trade, exiting half of the position near the November 2017 swing high and the other half at the two-year high set in January 2018. Place a stop order below the March 27 low at $154.87 to protect trading capital.
Ingersoll-Rand Plc (IR)
With a market value of $26.7 billion, Ingersoll-Rand Plc (IR) manufactures, services and markets industrial and commercial products through two operating segments. Its climate division makes and services HVAC systems and transportation refrigeration solutions, while its industrial operation sells compression systems, power tools, fluid management equipment and a range of utility vehicles. The manufacturing conglomerate made its largest acquisition since 2007 in February when it purchased Precision Flow Systems for $1.45 billion. Precision Flow's pumps, designed for use in the water, agriculture and beverage sectors, should help complement Ingersoll-Rand's existing fluid-management business. The company's share price has returned 21.44% so far this year as of April 3, 2019. Investors also receive a 1.92% dividend yield.
After spending the past six weeks trading within a narrow trading range, Ingersoll-Rand's share price broke to the upside and an all-time high in early April on broad market strength. Short-term conditions appear overbought, with the relative strength index (RSI) pushing the 70.0 level. Those seeking to trade the stock should wait for retracements to $107.50 – the initial breakout level. Consider using a 15-day SMA as a trailing stop to ride the bullish momentum. Manage risk by cutting losses if price closes beneath the March 25 low at $103.99.