What's worse than suddenly realizing that your favorite old jacket or well-worn pair of pants has simply fallen out of style? Even though your treasured garments may still be perfectly functional and comfortable, and the stench of moth balls does fade over time, it's a feeling that forces you to essentially part ways with an old friend.
It's also a feeling that investors, such as Kim Forrest, senior analyst at Fort Pitt Capital Group, want to avoid and is part of the reason why she recommends owning the uber fashionable industrial sector.
"They [industrials] are cyclical, and I think investors have to be extremely wary of that," Forrest says in the attached video. "But in the long term, industrials... especially companies that make very large machines that make people and industries very productive, that's the key."
More specifically, Forrest says what "really makes me want to own them in my portfolios" is the newfound productivity that these companies inject into an otherwise cold economy.
She says it's being driven in part by the unstoppable trend of automation — a cost-saving, quality-focused revolution that's not limited to the factory floor. For instance, she says the banks are among the most active automators in the industry right now.
"Earlier this year I was listening to JPMorgan talk about how they were going to spend half a billion dollars on IT," she recounts. "And then a couple of weeks later, they're saying they are going to lay off a whole bunch of people." It's not as if they're leaving the banking business, she says, it's just that "they're going to do it with less people and more technology."
As far as actual investment in the sector is concerned, Forrest offers two pieces of advice. First, she says, "You don't just want to buy a basket of the industrials. Just buying something that has the label 'technology' or 'industrials' is not really adequate."
And secondly, she says even though many investors derive a "sense of security" from owning large caps, "going down the scale to medium-sized companies might be the thing to do, especially if they have products that provide a lot of value to customers."