Top Industrial Stocks

The industrial sector includes companies that produce machinery, equipment, and supplies used in construction and manufacturing, as well as companies that provide related services. These companies are closely tied to the economy, and their business volume often falls sharply during recessions, though each industrial subsector often performs differently.

Industrial sector companies include Lockheed Martin Corp., Honeywell International Inc., and 3M Co. The industrial sector also includes companies that provide air transportation services, such as United Airlines Holdings Inc.

Industrial stocks, represented by an exchange-traded fund (ETF)—the Industrial Select Sector SPDR ETF (XLI)—have have fallen 9% compared with the 17% decline in the Russell 1000's during the past 12 months. These market performance numbers and all statistics in the tables below are as of Oct. 27, 2022.

Here are the top three industrial stocks with the best value, the fastest growth, and the most momentum.

Best Value Industrial Stocks

These are the industrial stocks with the lowest 12-month trailing price-to-earnings (P/E) ratio. Because profits can be returned to shareholders in the form of dividends and buybacks, a low P/E ratio shows that you're paying less for each dollar of profit generated.

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• Louisiana-Pacific Corp.: Louisiana-Pacific makes building materials and engineered wood products. The company provides oriented strand board sheathing, siding and trim, I-joists, laminated veneer lumber, and similar products. The company recently announced it will pay a quarterly dividend of $0.22 a share on Dec. 1 for shareholders of record as of Nov. 9.
• Builders FirstSource Inc.: Builders FirstSource makes and distributes building products and provides integrated services to professional home builders. It manufactures roof and floor trusses, wall panels, stairs, and vinyl windows. It also manufactures precision framing and visualization tools for architectural design. Builders FirstSource announced on Sept. 1 that it closed its $340 million acquisition of Trussway, a provider of pre-fabricated roof and floor trusses and other products.
• Ryder Systems Inc.: Ryder Systems is a fleet management and transportation company that provides leasing and maintenance for trucks and trailers. The company on Oct. 26 said third-quarter net earnings rose 17%, on rising revenue. Key drivers were accelerated earnings growth in its transportation and supply chain segments.

Fastest Growing Industrial Stocks

These are the top industrial stocks as ranked by a growth model that scores companies based on a 50/50 weighting of their most recent quarterly YOY percentage revenue growth and most recent quarterly YOY earnings-per-share (EPS) growth. Both sales and earnings are factors that are critical to the success of a company. Therefore, ranking companies by only one growth metric makes a ranking susceptible to the accounting anomalies of that quarter (such as changes in tax law or restructuring costs), which may make one figure or the other unrepresentative of the business in general. Companies with quarterly EPS or revenue growth of more than 2,500% were excluded as outliers.

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• Copa Holdings S. A.: Copa Holdings is a Panama-based airline company that provides cargo and low-cost passenger services through subsidiaries Copa Airlines and AeroRepublica. The company provides air service to cities in Central America, Mexico, Venezuela, and Cuba. On Aug. 3, Copa Holdings said that second-quarter net income increased more than four-fold as revenue rose.
• AECOM: AECOM is an infrastructure consulting company that provides services to businesses and governments in specialties including architectural design, planning, and construction. The company has a real estate investing and management segment.
• United Airlines Holdings Inc.: United Airlines and its regional carriers transport passengers and cargo across six continents, including in North America, Europe, Asia, and Latin America.

Industrial Stocks with the Most Momentum

These are the industrial stocks that had the highest total return over the past 12 months.

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• Lockheed Martin Corp.: Lockheed Martin is a defense and aerospace company. Its primary customer is the U.S. Department of Defense. The company's segments include Missile and Fire Control, Aeronautics, and Space. The company on Oct. 18 said that third-quarter net income rose nearly three-fold on a 3% increase in net sales. The company also said the board authorized a total of $14 billion of share repurchases.
• Avis Budget Group Inc.: Avis Budget Group provides vehicle rentals and other services. It operates brands including Avis, Budget, and Zipcar at more than 11,000 locations in about 180 countries.
• Valmont Industries Inc.: Valmont Industries provides fabricated metals for infrastructure and agriculture products. In addition, the company manufactures engineered components for highway safety products and center-pivot irrigation equipment.

Advantages of Investing in Industrial Stocks

Established Businesses: Many industrial companies have been in business for many years with a proven track record of successfully navigating the economic cycle through boom-and-bust periods. If an industrial company has generated consistent shareholder returns for decades, there's a good chance it will continue to do so in the future. For example, aerospace giant The Boeing Company (BA) has weathered many challenges over its 106-year history, but its share price has trended mostly higher since listing on the New York Stock Exchange (NYSE) in 1962.

Infrastructure Spending: The sector stands to benefit from increased national infrastructure spending as the economy recovers from the pandemic. In November 2021, lawmakers passed a $1.2 trillion infrastructure bill, meaning a windfall of sales for industrial companies that provide construction equipment and services, such as Fluor Corporation (FLR), Caterpillar Inc. (CAT), and Jacobs Engineering Group Inc. (J).

Risks of Investing in Industrial Stocks

Global Economy: Many industrial stocks operate internationally, making them exposed to a slowdown in global economic growth. An increasing number of U.S. industrial companies, such as 3M Company and General Motors Company (GM), generate significant revenue from China, making them particularly sensitive to the health of the Chinese economy. For example, 3M warned in June 2022 that ongoing lockdowns in the world's second-largest economy would wipe $300 million from revenues in the second quarter. Industrial companies have also faced compounding supply chain issues this year arising from Russia's invasion of Ukraine.

Tariffs: Industrial companies can face challenges from trade tariffs resulting from geopolitical tensions between countries. For instance, many U.S. and Chinese industrials were caught in a tit-for-tat trade war between Washington and Beijing in 2018 when the two economic superpowers disagreed over trade practices. According to research complied by American Action Forum, U.S. tariffs currently affect over $350 billion of imports and exports, which increases the cost of doing business for industrial companies. (American Action Forum. "The Total Cost of U.S. Tariffs.")