Morningstar analyst Eric Landry came out with his top picks in the industrials sector this morning, warning investors to choose stocks carefully in the industry, as valuations in many areas now look full. He noted that some troubling data points have emerged in recent weeks, including weakness in 3M’s (MMM) consumer-electronics business and semiconductor orders. In addition, depreciation rules will change next year, allowing companies to depreciate just 50% of an asset’s purchase rather than 100%.
That said, a few companies still look ripe for the picking.
General Electric (GE) “remains one of our best ideas in the diversified industrials space, as we think its collection of late-cycle businesses is primed for earnings growth,” Landry writes. “Although GE Capital has been the primary target for investor pessimism, the business has performed well above expectations. The company has telegraphed its intentions to reinstate the GE Capital dividend to the parent company in 2012, a goal that we think is attainable.”
FedEx (FDX) could benefit as its ground shipment business expands, and its freight business picks up. “Last year, ground produced more than triple express’s operating margin, and we expect the freight segment performance to continue to improve from the recent past, as well. Freight constitutes 12% of total sales–a material part of the franchise.”
Landry also likes truck-maker Paccar (PCAR) and auto company Fiat (FIATY).
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