The global economy sits upon a foundation of companies that build the machinery and tools to construct buildings, mine for resources, and produce ever-increasing quantities of goods efficiently.
For those companies and their investors, it might not always be a smooth ride: Industrials tend to be quite sensitive to changes in economic conditions. Their businesses can be fantastic when the economy is strong, but when recessions occur, the bottom can fall out. Still, industrial blue chip companies often can navigate both the ups and downs with grace.
While the U.S. economy is not in a recession right now, the pessimism and unrest in the markets since 2022 have left some high-quality industrial stocks trading at great prices for long-term investors. Consider scooping up these companies today so you can profit during the next bull market.
1. Caterpillar
Famous for the trademarked yellow color of its products, Caterpillar(NYSE: CAT) builds vehicles and equipment for construction, resource extraction and mining, energy, and transportation. It has grown for decades, propelled by the gradual expansion of the global economy. The company has paid and raised its dividends for 30 consecutive years, reflecting management's ability to guide the company through economic ups and downs.
Today, the stock trades in the middle of its 52-week range after a robust first-quarter report that pleased Wall Street. The company trades at a price-to-earnings ratio of just over 12 and a price/earnings-to-growth ratio of just 1, an indication that the stock might be cheap, considering that analysts on average are expecting the company's earnings per share (EPS) to grow by 12% annually over the next three to five years.
2. 3M
Many investors have avoided industrial conglomerate 3M(NYSE: MMM) for the past few years due to several lawsuits that have cast dark shadows on the stock. Shares recently jumped after the company announced a $10 billion settlement offer in litigation against it involving per- and polyfluoroalkyl substances (PFAS), synthetic chemicals that are hazardous to health. They have been dubbed "forever chemicals" due to the fact that they don't break down, leaving them persistent in the environment.
The company is also still mired in a class action lawsuit over the impacts that its allegedly defective hearing plugs had on military members over the years. The litigation threats mean that 3M remains a riskier stock than some might feel comfortable owning, but the potential reward is worth considering.
3M is a Dividend King that offers investors a 5.8% yield at the current share price and trades at a price-to-earnings ratio of 10, a tremendous discount to its long-term norms. The company has a reputation for innovation in product development, and it sells a diverse array of products into various end markets throughout the economy. 3M could be a big contrarian pick if it can resolve the litigation against it without taking tremendous long-term damage. It's a high-risk, high-reward option that investors should approach cautiously, even if the value is there.
3. Carlisle Companies
Most consumers probably won't know Carlisle Companies(NYSE: CSL), but it's a staple in the industrial sector, where it sells various construction products and components like roofing materials, weather-proofing products and coatings, wires, cables, and specialty chemical products. Its products are used both in new construction and for updating older buildings, which combine to give it a massive addressable market.
Carlisle might be one of the best bargains on Wall Street now. The stock trades at a forward price-to-earnings ratio of 12, but analysts believe its EPS will grow by an average of 17% annually over the next three to five years. That gives it a price/earnings-to-growth ratio of just 0.7. Investors will have a hard time finding a cheaper stock that offers double-digit percentage earnings growth. Also, management has paid and raised its dividend for 47 years, which yields 1.3% at the current share price.
4. Dover
Another industrial conglomerate, Dover(NYSE: DOV), has its fingerprints all over the economy. Its five business segments are engineered products, clean energy and fueling, imaging and identification, pumps and process solutions, and climate and sustainability technologies. It sells into markets ranging from wastewater to defense. With a return on invested capital of nearly 14%, Dover is another example of how strong execution and steady growth can create companies that perform well over time. Management has raised the dividend for 68 consecutive years, and the stock has outperformed the S&P 500 considerably over its lifetime.
Dover trades today at an attractive price for those with long-term holding periods. Analysts believe Dover's EPS will grow by 14% annually over the next three to five years, yet shares trade at a forward price-to-earnings ratio of just 15, and a price/earnings-to-growth ratio of 1.1. You don't need a lot of price action to generate solid returns on an investment when the company is growing at a double-digit percentage pace but carries a modest price tag. Even if its valuation remains steady, Dover's growth and 1.4%-yielding dividend will set investors up for a potential 15% annual total return.
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Justin Pope has no position in any of the stocks mentioned. The Motley Fool recommends 3M. The Motley Fool has a disclosure policy.
