The combined uncertainty surrounding upcoming elections and economic prospects has investors seeking ways to generate profits regardless of outcomes. While a potential recession could impact most companies, certain trades may rely less on election results. According to analysts at Societe Generale (OTCMKTS:SCGLY), industrial stocks reshoring production from overseas markets to domestic facilities represent one such opportunity.
The reshoring trend predates the pandemic, with manufacturers returning operations from locations abroad, particularly China, to bases in the United States and neighboring nations like Canada and Mexico. This shift may benefit a range of enterprises, along with more adaptable small-cap industrial stocks.
Recent moves by the Biden administration to restrict advanced chip exports to China, policies expected to continue under Harris’ potential leadership, reinforce this reshoring trend. A potential Trump administration would also advocate reshoring, as initial trade tensions began under his term. In other words, industrial stocks focused on reestablishing or expanding domestic production capabilities may gain a disproportionate advantage regardless of who wins the election.
Here are three industrial stocks well-positioned for growth, thanks to companies exiting China and reshoring production within the United States.
Rockwell Automation (ROK)
Rockwell Automation (NYSE:ROK) is one of the industry stocks to consider as the largest industrial automation company in the country. It is at the forefront of the digital transformation necessary to reshore many of the manufacturing processes that have gone overseas in past decades. The firm is involved in both oil & gas and renewables, focusing on infrastructure investment and semiconductors. It also manufactures increasingly popular robots in warehouses and distribution centers involving industrial stocks.
Rockwell Automation reported earnings a few days ago that handily beat expectations. However, the markets were not all that impressed because the company also cut its guidance for the current fiscal year. That is less of a problem considering it reported its third fiscal quarter, so the guidance reduction is only for the next three months. After that, the company said it expected the market to pick up.
This matches the view of analysts, who see the company’s earnings turning around starting next year. While the vast majority recommend holding the industrial stock, they give ROK stock an average price target of $286.19 per share. This represents a potential 10% upside.
Steel Dynamics (STLD)
One of the country’s largest industrial steel producers and recyclers, Steel Dynamics (NASDAQ:STLD), is expected to benefit not only from higher tariffs but also from increased demand for automobiles utilizing materials sourced domestically in the U.S. The company also manufactures structural steel used in home construction and could see growth as interest rates decrease.
In its latest earnings report, the company expressed optimism that industrial stocks would enter a rebound phase in the second half of the year, citing declining inventories among customers. Since reaching an early April high, STLD stock price has traded downward, bringing its price-to-earnings (P/E) ratio to just 9.5 multiple. This is approximately one-third of the S&P 500 benchmark average P/E ratio of 27.92 times.
Following its earnings release, analysts have become much more bullish on the industrial stock. Most analysts suggest it is a Buy, assigning an average price target of $132.42 per share, implying 10% upside.
Eaton (ETN)
On the surface, this Eaton (NYSE:ETN) doesn’t seem all that special. It trades at a P/E ratio of 32.1 times, slightly above the benchmark. Its recent earnings release did not prevent ETN stock from declining along with other industrial stocks due to increased market volatility. At first glance, it appears to be the typical electric equipment provider. While a sound long-term investment, it may not excite investors.
However, further examination reveals that the company generates 61% of its revenue from the United States. Its equipment experiences high demand thanks to the growing data center infrastructure necessitated by artificial intelligence (AI) applications. A reliable energy supply is critical for such infrastructure, leading to Eaton transformers, transmission equipment and switchgear requirements. This helps explain the company’s record EPS, 9% organic sales growth over the previous year and increased guidance.
Analysts remain optimistic about the industrial stock, collectively forecasting its share price to rise. They assign an average target price of $344.51 per share, representing a potential upside of approximately 20%.
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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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