13 Most Profitable Industrial Stocks Now

·16 min read

In this article, we will look at the 13 most profitable industrial stocks now. If you want to explore similar stocks, you can also take a look at 5 Most Profitable Industrial Stocks Now.

Over the past two decades, industrial players have chased after value creation by focusing on product margin optimization, channel sales excellence, and programmatic M&A. While these strategies proved fruitful in the pre-pandemic era, the disruptive forces of COVID-19, intensified by recent geopolitical tension between Russia and Ukraine, have ushered in a new world. While the industrials sector has experienced a decent rebound from a painful pandemic-driven recession, it also emerged to find a chaotic environment characterized by dramatic shifts in consumer purchasing behaviors, labor shortages, and global supply chain networks.

In the past year, the industrials sector was largely driven by the same concerns as the broader market. High inflation—and the implications of high inflation for interest-rate policy—weighed heavily on stocks. The sector largely tracked the broad market's performance for much of the year, though after a bounce in the fourth quarter was on track to outperform the S&P 500 for the year. The industrials sector may continue to be impacted in 2023 by many of the same near-term worries as other sectors—including, most pressingly, the increased risk of US or global recession. However, for investors with a long-term view, three key trends in the sector have created opportunities for US-based industrial companies: digital technologies and processes, an increased focus on sustainability, and a revival of domestic production instead of globe-spanning supply chains.

Additionally, a recent survey by McKinsey states that executives at several industrial companies have identified three crucial priorities that have emerged during these past few years: rising costs and inflationary pressures, talent retention and skill gaps among workers, and supply chain disruptions. While many companies are still focused on post-pandemic top-line recovery alongside combating short-term disruptions to maintain operating margins, leading firms are doubling down on long-term structural changes to how they approach customer interactions, supply chain resilience, and talent retention. While a US or global recession, should one occur, could slow the progress of these changes, it would be unlikely to derail them completely.

Industrial stocks include some of the oldest public companies that seem to form the backbone of the U.S. economy while lending their name to one of the key U.S. stock market indexes, the Dow Jones Industrial Average (DJIA). Some of the best industrial stocks to buy in this context include TransDigm Group Incorporated (NYSE:TDG), Union Pacific Corporation (NYSE:UNP), and 3M Company (NYSE:MMM). Another catalyst for industrial stocks is the Russian war in Ukraine that has led to increased defense spending around the world. A quick solution to the war seems increasingly unlikely. Thus, aerospace and defense stocks are poised to outperform the broader industry in the coming months. (see also 11 Best Aerospace Stocks To Buy and 11 Best Defensive Defense Stocks to Buy Heading Into 2023)

13 Most Profitable Industrial Stocks Now
13 Most Profitable Industrial Stocks Now

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Our Methodology

The companies that operate in the industrial sector as well as supplemental freight companies were selected for the list. In order to provide readers with some context for their investment choices, the business fundamentals and analyst ratings for the stocks are also discussed. Data from around 940 elite hedge funds tracked by Insider Monkey in the fourth quarter of 2022 was used to identify the number of hedge funds that hold stakes in each firm.

13 Most Profitable Industrial Stocks Now

13. United Parcel Service, Inc. (NYSE:UPS)

Number of Hedge Fund Holders: 36

United Parcel Service, Inc. (NYSE:UPS), commonly known as simply UPS, is an American multinational shipping & receiving and supply chain management company founded in 1907. Originally known as the American Messenger Company specializing in telegraphs, UPS has grown to become a Fortune 500 company and one of the world's largest shipping couriers.

At the beginning of February, MO Capital analyst Fadi Chamoun raised the price target on United Parcel Service, Inc. (NYSE:UPS) to $185 from $175 but maintained a Market Perform rating on the shares after its Q4 earnings beat. The analyst seems "encouraged" by the company's steady execution and productivity improvements that laid the foundation for a strong performance once demand recovers. However, he warns against headwinds into the first half of 2023.

On January 31, United Parcel Service, Inc. (NYSE:UPS) raised its quarterly dividend to $1.62 per share, thus growing  its dividend growth streak to 13 years.

As of the close of Q4 2022, 36 hedge funds tracked by Insider Monkey owned investments in United Parcel Service, Inc. (NYSE:UPS), worth over $514.6 million. The Bill & Melinda Gates Foundation Trust is a notable shareholder in the company, with a stake worth approximately $128.76 million.

Much like TransDigm Group Incorporated (NYSE:TDG), Union Pacific Corporation (NYSE:UNP), and 3M Company (NYSE:MMM), United Parcel Service, Inc. (NYSE:UPS) has been raking in profits for its investors.

Diamond Hill Capital mentioned UPS in Q3 2022 investor letter. Here is what the firm has to say:

United Parcel Service, Inc. (NYSE:UPS) is the world’s largest package deliverer, operating globally. The company and its share price had benefited from pandemic-related spikes in shipping demand while supply was constrained (grounding of airlines and their associated space), leading to increased pricing power. Our view is such conditions will not persist as the environment normalizes. In Q3, UPS reported weak results and a decline in volume in its US domestic business, pressuring the share price.”

12. Honeywell International Inc. (NASDAQ:HON)

Number of Hedge Fund Holders: 44

Honeywell International Inc. (NASDAQ:HON) is an American publicly traded, multinational conglomerate corporation that primarily operates in four areas of business: aerospace, building technologies, performance materials and technologies, and safety and productivity solutions. For fiscal Q4 2022, Honeywell International Inc. (NASDAQ:HON) reported earnings-per-share of $2.52, beating estimates by $0.01. The company’s revenue for the quarter amounted to $9.11 billion.

On February 3, JPMorgan analyst Stephen Tusa raised the price target on Honeywell International Inc. (NASDAQ:HON) to $215 from $205 and maintained an Overweight rating on the shares. According to Tusa, the company's Q4 results and 2023 guidance were largely in line with expectations, and he sees an upside to the future outlook.

Honeywell International Inc. (NASDAQ:HON) was spotted on 44 investors’ portfolios at the end of Q4 2022. The total stakes of these hedge funds amounted to $679.62 million. As of December 31, Diamond Hill Capital is the leading investor in the company and has disclosed a position worth $245.4 million.

11. FedEx Corporation (NYSE:FDX)

Number of Hedge Fund Holders: 48

FedEx Corporation (NYSE:FDX), formerly Federal Express Corporation and later FDX Corporation, is an American multinational conglomerate holding company focused on transportation, e-commerce and business services. On February 17, the company declared a quarterly dividend of $1.15 per share, in-line with its previous dividend. The company maintains a 21-year streak of consistent dividend growth.

BofA analyst Ken Hoexter upgraded FedEx Corporation (NYSE:FDX) to Buy from Neutral with a price target of $233, up from $204. The analyst seems more confident in FedEx's outlook as it reduces excess capacity and enhances productivity. Additionally, he thinks that the headcount reductions could be a roughly $0.4 tailwind to quarterly EPS, while also stating that the company's aspirational targets are moving closer to reality.

At the end of December 2022, 48 hedge funds in Insider Monkey’s database owned stakes in FedEx Corporation (NYSE:FDX), down from 57 in the previous quarter. These stakes have a total value of over $1.48 billion. Ken Griffin and Steve Cohen were some of the company’s leading stakeholders in Q4.

Artisan Partners mentioned FedEx Corporation (NYSE:FDX) in its Q3 2022 investor letter. Here is what the firm has to say:

“Earnings results at FedEx Corporation (NYSE:FDX), a global shipping and logistics firm, disappointed due to slowing volumes—principally in its Express segment, which resulted in negative operating leverage—in addition to continued cost pressures. The Express business has been affected by trade disruptions in Asia from China’s COVID lockdowns, as well as the mix of global consumer spending trending back toward services and away from goods—a normalization of pandemic-driven consumer behavior. A key question for investors is how much of this demand slowdown is idiosyncratic and therefore less likely to repeat and how much is the start of a possible cyclical slowdown. To counter these headwinds, FedEx is looking to achieve cost reductions while it continues to implement multi-year structural cost reduction initiatives focused on technology investments and efficiency gains. Given a mixed track record and the recent earnings miss, there is a high degree of skepticism embedded in the current stock price as it sells for less than 8X our estimate of normalized earnings. While operating results can be choppy, the longer term business economics are highly favorable given the global shipping industry’s consolidated structure and massive barriers to entry that afford operators with pricing power to counter cost inflation and earn respectable returns on capital over the business cycle.”

10. Northrop Grumman Corporation (NYSE:NOC)

Number of Hedge Fund Holders: 49

Northrop Grumman Corporation (NYSE:NOC) is an American multinational aerospace and defense technology company. With 90,000 employees and an annual revenue in excess of $30 billion, it is one of the world's largest weapons manufacturers and military technology providers. The company stated that it is expecting solid margins and free cash-flow growth in 2023. Additionally, it expects to return at least 100% of adjusted free cash-flow to shareholders this year.

At the end of January, Wells Fargo analyst Matthew Akers raised his price target on Northrop Grumman Corporation (NYSE:NOC) to $470 from $460 and maintained an Equal Weight rating on the shares. Although the company's initial guide reset expectations with margins below on macro factors and CAS headwinds, the analyst points out that Northrop Grumman appears committed to an aggressive share repurchase, potentially limiting downside for the stock.

There were 49 hedge funds long Northrop Grumman Corporation (NYSE:NOC) in the fourth quarter of 2022, and their total stake value in the company was $1.53 billion. Rajiv Jain's GQG Partners was the largest stakeholder in the company in the fourth quarter, holding stakes worth $428.26 million in the company.

LRT Capital Management, an investment management firm, mentioned Northrop Grumman Corporation (NYSE:NOC) in its fourth-quarter 2022 investor letter. Here’s what the firm said:

“Based in Virginia, Northrop Grumman Corporation (NYSE:NOC) is one of the world’s largest defense contractors with annual revenue more than $30 billion. The company operates in a cozy oligopoly, that after decades of consolidation the US defense market is now controlled by five large companies: The Boeing Company (BA), General Dynamics Corporation (GD), Lockheed Martin Corporation (LMT), Northrop Grumman Corporation (NOC), and Raytheon Technologies Corporation (RTX).

Industry barriers to entry are immense, government procurement cycles are extremely long, and the consolidated industry structure reflects this. This industry structure has allowed Northrop to earn stable mid-teens returns on invested capital (ROIC) and grow earnings per share at a rate of over 13% per year in the past decade, despite a topline that has grown only in-line with inflation. Even after the recent run-up in the stock price, it trades at approximate 15x, next year’s earnings estimates, far below the S&P 500 index, despite being an above average company. While nominally, there are five major defense contractors, the true industry concentration is even higher because not all companies compete in all possible business segments. General Dynamics’ division submarine division, Electric Boat, is the sole supplier of nuclear power submarines in the United States. Lockheed Martin is the sole supplier of the F-35 and F-22. Northrop was the sole bidder on the contract to develop the next generation of intercontinental ballistic missiles; and so on…” (Click here to read the full text)

9. Caterpillar Inc. (NYSE:CAT)

Number of Hedge Fund Holders: 50

Caterpillar Inc. (NYSE:CAT) is an American manufacturing company that specializes in the production of construction equipment that also operates as the world's leading manufacturer of mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives.

On February 7, BMO Capital analyst Joel Tiss raised the price target on Caterpillar Inc. (NYSE:CAT) to $230 from $210 but kept a Market Perform rating on the shares of the manufacturing company. The analyst cites Caterpillar's "strong" underlying results in Q4 and believes that low inventory levels at its dealers, greater operating efficiencies, and share repurchases should help support earnings over the next few years.

Caterpillar Inc. (NYSE:CAT) currently pays a quarterly dividend of $1.20 per share and has a dividend yield of 1.99%, as of February 22. The company holds a 28-year streak of consistent dividend growth.

The number of hedge funds tracked by Insider Monkey owning stakes in Caterpillar Inc. (NYSE:CAT) grew to 50 in Q4 2022, from 43 in the previous quarter. These stakes have a total value of over $5 billion. The Bill & Melinda Gates Foundation Trust was the company's leading shareholder for the quarter.

Diamond Hill Capital mentioned Caterpillar Inc. (NYSE:CAT) in its Q4 2022 investor letter. Here is what the firm has to say:

“In the case of Caterpillar Inc. (NYSE:CAT), the company reported a better-than-expected Q3 as demand in mining, non-residential construction and energy remained healthy through the year even as recession fears grew. Caterpillar showed strong pricing power and operating efficiency in the face of supply chain constraints and labor shortages, which in turn contributed to better-than-expected share price performance.”

8. Raytheon Technologies Corporation (NYSE:RTX)

Number of Hedge Fund Holders: 51

Raytheon Technologies Corporation (NYSE:RTX) is an American multinational aerospace and defense conglomerate headquartered in Arlington, Virginia. Not only does it rank as one of the largest aerospace and defense manufacturers in the world by revenue and market capitalization, the company is also one of the largest providers of intelligence services, as well as a large military contractor, getting a significant portion of its revenue from the U.S. government.

Earlier this January, RBC Capital analyst Ken Herbert raised the price target on Raytheon Technologies Corporation (NYSE:RTX) to $110 from $107 and maintained an Outperform rating on the shares after its Q4 earnings beat. The analyst was "not surprised" by the relief rally in the stock following these results and remains positive on the defense conglomerate on account of its aerospace business growth and the expected acceleration in its defense sales.

Raytheon Technologies Corporation (NYSE:RTX) remained a popular buy among hedge funds in Q4 2022, as 51 funds in Insider Monkey’s database owned stakes in the company, valued at approximately $1.82 billion. Dmitry Balyasny's Balyasny Asset Management was the company's biggest shareholder, with 2.27 million stakes worth $229.9 million.

Carillon Tower Advisers mentioned Raytheon Technologies Corporation (NYSE:RTX) in its Q3 2022 investor letter. Here is what the firm has to say:

“Raytheon Technologies Corporation (NYSE:RTX) announced strong results led by strength in its commercial segment, but weakness in its defense business led to investor consternation. Management guided to a recovery in this segment, citing both transitory supply chain issues and continued strong demand.”

7. 3M Company (NYSE:MMM)

Number of Hedge Fund Holders: 52

3M Company (NYSE:MMM), formerly known as Minnesota Mining and Manufacturing Company,  is a multinational conglomerate corporation with operations in a wide range of industries, including healthcare, transportation, consumer products, and industrial markets. On February 7, 3M Company (NYSE:MMM) declared a quarterly dividend rate of $1.50, a $0.01 increase from the previous rate.

Earlier this December, Citi analyst Andrew Kaplowitz raised the price target on 3M Company (NYSE:MMM) to $126 from $117 and kept a Neutral rating on the shares. According to the analyst, megatrends and "still emerging fiscal tailwinds" should help moderate potential downside for industrials in a slowing macro-economic environment in addition to improving price versus cost trends and gradually improving supply chains.

According to Insider Monkey’s data, 3M Company (NYSE:MMM) was part of 52 public stock portfolios at the end of December 2022, compared to 49 in the prior quarter. Ken Griffin's Citadel Investment Group is the largest stakeholder of the company, with 2.46 million shares worth $295.95 million.

Mayar Capital mentioned 3M Company (NYSE:MMM) in its Q2 2022 investor letter. Here is what the firm has to say:

“We also bought back into 3M (NYSE:MMM) as the stock reached attractive levels. We’d sold our shares in 3M last year when the price exceeded our estimated fair value, and as better opportunities to invest in presented themselves at the time. Nonetheless, we’ve always liked this business with its diversified revenues, its R&D leadership and its stable margins.

6. Lockheed Martin Corporation (NYSE:LMT)

Number of Hedge Fund Holders: 53

The Lockheed Martin Corporation (NYSE:LMT), formed by the merger of Lockheed Corporation with Martin Marietta in March 1995, is an American aerospace, arms, defense, information security, and technology corporation with worldwide interests. This past year, Lockheed Martin's Rotary & Mission Systems segment amounted to about $16.15 billion while the company's product segment with the highest net sales of nearly $27 billion was Aeronautics.

On February 6, Credit Suisse analyst Scott Deuschle upgraded Lockheed Martin Corporation (NYSE:LMT) to Outperform from Underperform with a price target of $510, up from $427, based on the firm's updated sector outlook, improved confidence in the company's growth inflection and alignment in the firm's out-year EBIT growth forecasts between Lockheed and Northrop Grumman Corporation (NYSE:NOC). According to the analyst, the company has now reported three consecutive quarters with a book-bill ratio greater than 1.0.

At the end of Q4 2022, 53 hedge funds in Insider Monkey’s database owned stakes in Lockheed Martin Corporation (NYSE:LMT), the same as the previous quarter. The collective value of these stakes is nearly $2.13 billion. With over 1.66 million shares, GQG Partners was the company’s leading stakeholder in Q4.

The aerospace and defense company ranks among the likes of TransDigm Group Incorporated (NYSE:TDG), Union Pacific Corporation (NYSE:UNP), and 3M Company (NYSE:MMM) as one of the most profitable industrial stocks.

Vltava Fund mentioned Lockheed Martin Corporation (NYSE:LMT) in its Q3 2022 investor letter. Here is what the firm has to say:

LMT is one of the world’s largest aerospace and defence companies. The war in Ukraine has reminded investors and the wider public just how important these companies are. The aerospace and defence industry in the USA is an established oligopoly. This means that a few large firms play a dominant role. While collectively they comprise an oligopoly, individually they often have monopoly positions in particular narrower segments. Their main counterparty is the US government, a key customer in what is known as a monopsonist position. This is a rather unusual situation, but one that is very advantageous for companies such as LMT. (Click here to see the full text)

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Disclosure: None. 13 Most Profitable Industrial Stocks Now is originally published on Insider Monkey.