Top Industrial Stocks for May 2023

Top industrial sector stocks this month include Evolv Technologies Holdings Inc., Axon Enterprise Inc., and CECO Environmental Corp., the share prices of which have all doubled in the past year.

Industrial stocks, represented by the Industrial Select Sector SPDR ETF (XLI), have risen 6% in the past 12 months compared with a 3% gain for the Russell 1000.

Here are the top three industrial stocks with the best value, the fastest growth, and the most momentum. All data are as of May 11.

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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• ZIM Integrated Shipping Services Ltd.: ZIM Integrated Shipping Services is an Israel-based container transportation and logistics company providing cargo for approximately 100 countries worldwide. ZIM's net income dropped 75% year over year in the fourth quarter of 2022, owing to a 41% drop in the average freight rate. Shares have fallen 80% from their March 2022 highs.
• Cresud S.A.C.I.F. y A.: Cresud produces agricultural commodities such as soybeans, wheat, corn, and sugarcane. The company also maintains a portfolio of investment properties, including urban hotels, shopping malls, and office buildings throughout Argentina. Net income was 17.5 million Argentinian pesos in the first quarter of 2023, compared with a 30 million peso loss in the previous year when the company adjusted the fair value of investment properties down by 75 million pesos.
• A.P. Moller Maersk A/S: Maersk is a Danish shipping company engaged in overseas and inland freight, as well as related services like warehousing, land and air transport, and supply chain management. It is the world's largest shipping company by revenue.

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 1,000% were excluded as outliers.

^{Source: YCharts}

• Sun Country Airlines Holdings Inc.: Sun Country is a low-cost airline that operates cargo and passenger flights within North and Central America. The company reported first-quarter earnings on April 27, with net income surging more than tenfold on a 21% increase in average fares and a 40% increase in charter service revenue.
  
• Johnson Controls International PLC: Johnson Controls is an engineering company based in Ireland that manufactures and sells ventilation systems, fire systems, and security products for commercial and industrial uses.
• Hillenbrand Inc.: Hillenbrand is a global industrial company that offers products such as material handling equipment, molding and extrusion equipment, and process control systems.

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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• Evolv Technologies Holdings Inc.: Evolv is a defense and security company manufacturing AI-based weapons detection systems.
• Axon Enterprise Inc.: Axon Enterprise manufactures and sells conducted energy devices and cloud-based video capture software for use by law enforcement. Axon has seen steady and sustained growth over the past year. Axon's revenue jumped 34% in the first quarter on the release of multiple new products and 51% growth in its cloud business.
  
• CECO Environmental Corp.: CECO is a diversified industrial company providing environmental processing equipment for industrial air quality, marine and naval vessels, wastewater treatment, oil and natural gas, and hydrocarbon processing.

Advantages of Investing in Industrial Stocks

Established Businesses: Many industrial companies have been in business for decades 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 Boeing (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, exposing them to a slowdown in global economic growth. An increasing number of U.S. industrial companies, such as 3M Company (MMM) and General Motors Company (GM), generate significant revenue from China, making them particularly sensitive to the health of the Chinese economy.

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. Tariffs imposed by President Trump impacted more than $300 billion worth of imports and raised the price of some goods, like semiconductors and audio/video equipment, by as much as 25%, an increase importers could only partially pass on to consumers.