If you think industrial assembly lines in the U.S. aren't running yet as the COVID-19 pandemic continues to rage, think again. The closely watched manufacturing index from the Institute for Supply Management (ISM) hit a 21-month high of 56% in August, reflecting a strong uptick in industrial production and orders. A reading above 50% is positive.
The industrials sector is helping the American economy recover. Did you notice? If the dizzying rally in tech stocks made you forget industrials for a while, don't worry. You still have time to buy these three promising industrial stocks.
Social distancing means more business for this company
ABB (ABBN.Y -0.26%) recently made a sensible business move. It divested an 80% stake in its power grid business to Hitachi to focus on "industrial customers" through its four remaining business units: electrification, industrial automation, motion, and robotics and discrete automation.
The prospects for automation and robotics are mind-boggling as businesses across the globe increasingly replace human labor with machines to improve productivity and efficiency. The coronavirus outbreak and social distancing could set off unanticipated investment in automation. According to a recent study by Honeywell Intelligrated, a subsidiary of industrial conglomerate Honeywell International, more than 50% of U.S. companies are keen to invest in automation in the aftermath of the pandemic, with e-commerce, grocery, food and beverage, and logistics showing the highest interest. There's a massive addressable market out there for a company like ABB.
Image source: Getty Images.
Meanwhile, investors in ABB can expect to be rewarded in other ways. First, ABB wants to return net cash proceeds worth $7.6 billion-$7.8 billion that it raised from the power grids sale to its shareholders. That's a lot of money to dole out, and the company has already kicked off a share repurchase program. The stock pays regular dividends and yields 3.2% currently. ABB also enjoys a high credit rating and is making the right moves to further strengthen its balance sheet.
Whichever way you look -- whether it's diversification, financials, or growth prospects -- ABB makes for a compelling industrial stock to buy and hold for the long haul.
Coronavirus has brought good news for this stock
XPO Logistics (XPO -3.54%) Chief Information Officer Mario Harik made an interesting observation last month: "In June, our last mile unit in North America saw deliveries climb to the kind of peaks we typically see during the holidays."
As the leading last-mile logistics company in the U.S., XPO is witnessing a spurt in demand for home delivery services of heavy goods like exercise equipment, appliances, and furniture. The surge stems from the COVID-19 pandemic, which has forced people to stay indoors and shop online. The e-commerce trend is here to stay, but that's just one factor boosting XPO Logistics' appeal. The other is the probability of the company splitting up.
Market uncertainty forced XPO to abort plans to divest large chunks of its business in March. The company's second-quarter numbers released at the end of July didn't go down well in the market. Yet the subsequent stock price drop only highlighted that XPO shares continue to trade at a discount to pure-play peers.
For perspective, XPO stock is up only about 10% year to date as of this writing, versus the gains of 20% or more that rivals FedEx, UPS, and C.H. Robinson have seen.
So even as XPO makes the most of an e-commerce boom and cements its position in the crucial last-mile space, there's a strong chance management may revive plans to split the company to unlock greater value. Meanwhile, XPO could also make some acquisitions: It's historically been a highly acquisitive company and was sitting on cash and equivalents worth $2.3 billion as of June 30. Now that's one stock worth considering while it still trades at a relative discount.
After a big contract, is a big dividend coming your way?
Lockheed Martin (LMT -0.19%) shares are barely in the green year to date as of this writing, but there are still two major reasons to buy the stock now. First, solid quarterly numbers and backlog reflect the aerospace and defense giant's consistency even during a pandemic. Second, the company just landed a fresh contract that could add significant value going forward.
Though better known for its F-35 fighter jets, Lockheed Martin recently bagged a whopping 10-year $62 billion contract for F-16 fighter jets. It's a significant deal given that Lockheed made no F-16 deliveries in the past two years. The F-35 program -- which includes development, production, and sustainment contracts -- is Lockheed's largest program, adding nearly 27% to its total sales in 2019 and 2018 each. In fact, Lockheed had only 30 F-16 aircraft in backlog versus 374 F-35 in production backlog as of December 2019.
The F-16, however, has traditionally been a more profitable plane model for Lockheed, which is why its latest contract is expected to ring in solid profits in the coming decade.
For that matter, Lockheed's operational performance in recent years has given little room for complaints, what with its top and bottom lines rising steadily. In July, Lockheed reported double-digit increases in its second-quarter revenue and net income year over year, encouraging management to raise its full-year guidance.
Most importantly, Lockheed Martin ended Q2 with a record backlog of $150.3 billion. A dividend raise could also be coming your way, as the company expects cash from operations to the tune of $8 billion this year. That's enough cause for savvy investors to pile on this 2.5%-yielding top-notch industrials stock.
