Industrial sector stocks have been some of this year’s best performers as investors dumped the 2020 high-flyers, shares in technology companies, and piled into names that are sensitive to the improving economic outlook.
Indeed, the sector’s main ETF—Industrial Select Sector SPDR® Fund (NYSE:XLI)—has rallied around 17% year-to-date to reach its best level on record in recent days. The S&P 500, for its part, is up just 10.5% over the same timeframe.
Below we highlight three leading names in the sector. Each is well worth considering given the growing optimism surrounding the strengthening global economy.
1. Caterpillar
- Year-To-Date Performance: +31.5%
- Market Cap: $128.9 Billion
Caterpillar (NYSE:CAT)—widely considered a bellwether for economic activity—is one of the world’s leading manufacturers of construction, mining, and energy equipment.
The Deerfield, Illinois-based industrial machinery maker has thrived this year, benefitting from growing optimism on the global economy, which has also fueled a spectacular rally in a wide range of raw materials.
Year-to-date, Caterpillar has seen its stock jump by around 31.5%. Even more impressive, shares have gained roughly 120% over the past 12 months, far outpacing the comparable returns of both the Dow Jones Industrial Average and the S&P 500.
After reaching a fresh record of $242.75 at the start of the week, CAT shares ended at $239.30 on Tuesday, giving the machinery giant a market cap of $128.9 billion.
Caterpillar reported solid first quarter results on Apr. 29, crushing expectations for both earnings and revenue amid a booming U.S. housing market and a rebound in demand for commodities.
The heavy machinery behemoth reported earnings per share of $2.87 for its fiscal first quarter of 2021, improving 79% from EPS of $1.60 in the same quarter a year earlier.
Revenue jumped nearly 13% year-over-year to $11.9 billion, which was much higher than the estimated $10.9 billion. That marked one of the company’s biggest revenue ‘beats’ of the past decade.
As explained in their earnings report:
"The increase was due to higher sales volume driven by higher end-user demand and the impact from changes in dealer inventories."
While Caterpillar refrained from providing full-year 2021 guidance due to the lingering impact of COVID-related uncertainty, the company should continue to perform well in the months ahead, given the improving outlook for construction and mining machinery sales in a recovering global economy.
2. Union Pacific
- Year-To-Date Performance: +8.8%
- Market Cap: $149.1 Billion
The Union Pacific Corporation (NYSE:UNP), founded in 1862, is the second largest freight railroad operating company in the United States. It focuses primarily on transporting freight commodities such as coal, grains, lumber, crude oil, and ethanol.
The railroad giant also offers transportation services for construction products, industrial chemicals and fertilizers, plastics, metals and ores, as well as finished automobiles, auto parts, intermodal containers, and truck trailers.
Shares of the Omaha, Nebraska-based company, which operates 8,300 locomotives over 32,300 route miles across 23 states, have climbed around 9% year-to-date, reaping the benefits of higher shipping volumes amid an improving economy.
UNP stock—which is up about 45% over the last 12 months—climbed to an all-time high of $231.10 on Monday, before closing at $226.61 last night, earning it a valuation of $149.1 billion.
Union Pacific delivered first quarter earnings and revenue on Apr. 22, which fell short of analyst estimates mainly due to the negative impact of the crippling winter storm and deep freeze that brought much of the U.S. South to a standstill in February.
The freight-hauling railroad company said it earned $2.00 per share, missing forecasts for EPS of $2.06 and down from $2.15 in the same quarter last year. Revenue totaled $5.0 billion, down 4% from the year-ago period. Consensus expectations called for sales of $5.05 billion.
However, in a sign that bodes well for the future, Union Pacific affirmed its full-year guidance, despite the disappointing Q1 numbers.
According to Lance Fritz, Union Pacific CEO, in UNP's earnings release:
"We generated solid productivity through efficient use of our resources despite the significant weather event that covered most of our network in February and early March.
"An improving economic outlook, our continued commitment to value based pricing that exceeds inflation and the opportunity for strong productivity give us confidence to affirm our 2021 guidance."
3. Old Dominion Freight Line
- Year-To-Date Performance: +35.3%
- Market Cap: $30.1 Billion
Another transport heavy hitter, Old Dominion Freight Line (NASDAQ:ODFL) operates as a less-than-truckload (LTL) carrier, providing regional, inter-regional and national LTL service. In addition to its core LTL services, the company also offers various value-added services, such as, truckload brokerage, warehousing, and supply chain consulting.
The Thomasville, North Carolina-based trucking company, founded in 1934, owns nearly 23,000 trailers and more than 9,200 tractors. It also operates 245 service centers and 42 maintenance facilities.
Shares of the motor carrier have thrived since the start of the year, jumping 35%. Year-over-year, shares have gained 70%, amid a recovery in the trucking industry.
ODFL stock settled at $264.14 yesterday, within sight of its recent record high of $276.09, giving the mid-cap company a valuation of $30.1 billion.
Old Dominion reported strong first quarter earnings and sales growth when it posted its latest results on Apr. 22, benefitting from an improving domestic economy and increased freight demand.
Earnings per share soared 53% from the year-ago period to $1.70, much better than expectations for EPS of $1.58. Revenue, meanwhile, climbed 14% year-over-year to $1.13 billon, beating estimates for sales of $1.10 billion.
LTL tons and LTL revenue per hundredweight—two key metrics—climbed 8.3% and 5.6%, respectively, from the year-ago period. Furthermore, LTL shipments rose 6.9% compared to last year, while LTL shipments per day increased 8.6% year-over-year.
In the earnings release, Old Dominion CEO Greg Gantt said:
“We are winning market share as demand for our industry-leading service continues to increase. In addition, we believe the domestic economy is getting stronger while industry capacity is generally limited.
“We are encouraged by these trends and believe the combination of our value proposition, existing capacity, and ongoing investments to expand our capacity will support future revenue growth opportunities.”