14 Most Profitable Industrial Stocks Now

Published on December 20, 2023 at 1:48 am by Sheryar Siddiq in Hedge Funds, News

In this piece, we will take a look at the 14 most profitable industrial stocks to buy now. If you want to skip our overview of the industrial sector and some recent developments, then take a look at 5 Most Profitable Industrial Stocks Now.

The industrial sector plays a fundamental role in the U.S. economy, encompassing manufacturing, construction, mining, and utilities. Over the years, it has adapted to globalization, technological advancements, and changes in consumer preferences. The integration of automation and digitalization has revolutionized production processes, enhancing efficiency but also impacting employment patterns. Industrial stocks, typically recognized for their stability and resilience, have traditionally outperformed the broader market during periods of economic expansion and recovery. However, the current year has witnessed a departure from this trend. In 2023, the S&P 500 Industrial Index has seen a gain of 10.53%, lagging behind the broader S&P 500, which posted a 20.7% gain.

However, underestimating the sector’s potential for 2024 and beyond could be a mistake for investors. The challenges in the supply chain during the pandemic and heightened geopolitical tensions have underscored the benefits of increased US self-sufficiency after decades of underinvestment in the country’s industrial base. Consequently, there is a significant influx of federal funding and other incentives, amounting to hundreds of billions of dollars, poised to support infrastructure development, onshoring/reshoring initiatives, climate change mitigation, and the “electrification of everything.”

According to McKinsey, leading players in the industrials sector have created value by prioritizing product margin optimization and actively participating in mergers and acquisitions (M&A) over the past two decades. The effectiveness of these strategies is evident in the period from 2014 to 2019, where the return on capital employed (ROCE) for the sector increased by 13%, surpassing the typical sector-level weighted average cost of capital, typically ranging from 8% to 10%. Moreover, the sector’s annual shareholder returns saw an expansion of around 400 basis points compared to the preceding 15 years.

Considering the trends and developments mentioned above, prominent companies in the sector, including Deere & Company (NYSE:DE), Union Pacific Corporation (NYSE:UNP), and General Electric Company (NYSE:GE), have been actively investing in advanced technologies and broadening their service offerings to capitalize on the pent-up demand.

14 Most Profitable Industrial Stocks Now

An industrial complex with a large fleet of machines in the background.

Our Methodology

In curating our selection of the most profitable industrial stocks to invest in, we extensively reviewed Insider Monkey’s Q3 2023 database to pinpoint industry leaders assessed by hedge fund sentiment. Following that, the shortlisted companies were ranked according to their trailing twelve month net income.

14. TransDigm Group Incorporated (NYSE:TDG)

Number of Hedge Fund Holders: 67

Latest TTM Net Income: $1.26 billion

Cleveland-based TransDigm Group Incorporated (NYSE:TDG) is a publicly traded aerospace manufacturing company founded in 1993 through the consolidation of four industrial aerospace firms in a leveraged buyout. The company, specializing in the development and production of engineered aerospace components, operates through three main segments: Power & Control, Airframe, and Non-aviation. Serving a diverse clientele, including engine and power system component suppliers, airlines, third-party maintenance providers, military procurement agencies, and repair facilities, TransDigm Group is a key player in the aerospace industry.

TransDigm Group Incorporated (NYSE:TDG) delivered an exceptional performance in the fourth quarter of 2023, surpassing consensus expectations across key metrics, including revenue, EBITDA, and EPS. Additionally, the company provided FY24 guidance that exceeded consensus estimates. The robust quarter was complemented by the announcement of a new $2 billion special dividend. Specifically, TDG reported an EPS of $8.03, outperforming the consensus estimate of $7.55. This performance was underpinned by robust organic revenue growth of 19%, driven by a 27% increase in Commercial aftermarket, a 22% rise in Commercial OEM, and a 15% growth in Defense.

As of September 2023, 67 hedge funds out of the 910 tracked by Insider Monkey included TransDigm Group Incorporated (NYSE:TDG) in their portfolios. Among these, AltaRock Partners, led by Mark Massey, emerged as the company’s biggest shareholder, possessing 1.3 million shares valued at $1.10 billion.

Much like Deere & Company (NYSE:DE), Union Pacific Corporation (NYSE:UNP), and General Electric Company (NYSE:GE), TransDigm Group Incorporated (NYSE:TDG) ranks as one of the most profitable industrial stocks to invest in.

13. Republic Services, Inc. (NYSE:RSG)

Number of Hedge Fund Holders: 37

Latest TTM Net Income: $1.64 billion

Republic Services, Inc. (NYSE:RSG) operates as a waste disposal company in North America, offering a range of services such as non-hazardous solid waste collection, waste transfer, waste disposal, recycling, and energy services. It holds the position of being the second-largest provider of waste disposal services in the United States.

During the third quarter of 2023, Republic Services, Inc. (NYSE:RSG) demonstrated a robust financial position, reporting an operating cash flow exceeding $2.8 billion and free cash flow totaling $1.8 billion. In this period, the company distributed approximately $470 million in dividends. Notably, Republic Services, Inc. (NYSE:RSG) has consistently increased its dividends for 19 consecutive years, currently offering a quarterly dividend of $0.535 per share.

As of the close of Q3 2023, 37 hedge funds tracked by Insider Monkey owned stakes in Republic Services, Inc. (NYSE:RSG), which remained unchanged from the previous quarter. The collective worth of these stakes is over $1.17 billion.

12. Waste Management, Inc. (NYSE:WM)

Number of Hedge Fund Holders: 41

Latest TTM Net Income: $2.31 billion

Waste Management, Inc. (NYSE:WM), commonly known as “WM,” is a leading waste management, environmental services, and comprehensive waste solutions company serving North America. Established in 1968, the company is headquartered in the Bank of America Tower in Houston, Texas.

On October 26, Stifel analyst Michael Hoffman increased the price target for Waste Management, Inc. (NYSE:WM) from $177 to $183 while maintaining a Buy rating on the shares. The analyst highlighted the stellar financial performance in Q3 2023, with revenue witnessing a growth of over 2.4%. Additionally, the company’s robust pricing power and cost-cutting initiatives have enhanced resilience to macroeconomic challenges in recycling and renewable energy. Waste Management, Inc. (NYSE:WM) anticipates that its sustainable investments sector will generate an additional $740 million in EBITDA by 2026, contributing to long-term growth.

The number of hedge funds in Insider Monkey’s database owning stakes in Waste Management, Inc. (NYSE:WM) grew to 41 in Q3 2023, from 39 in the preceding quarter. The consolidated value of these stakes is nearly $6 billion. Among these hedge funds, Bill & Melinda Gates Foundation Trust was the company’s leading stakeholder in Q3.

11. RTX Corporation (NYSE:RTX)

Number of Hedge Fund Holders: 63

Latest TTM Net Income: $3.19 billion

RTX Corporation (NYSE:RTX), a firm specializing in aerospace and defense, delivers systems and services to clients in the worldwide commercial, military, and government sectors. The company is organized into four primary segments: Collins Aerospace, Pratt & Whitney, Raytheon Intelligence & Space, and Raytheon Missiles & Defense.

RTX Corporation (NYSE:RTX) announced surpassing quarterly earnings expectations in October, with robust performance in its Collins Aerospace business offsetting the repercussions of a significant quality crisis in its engine-making unit, Pratt and Whitney. Additionally, the company greenlit a $10 billion share repurchase program, to be financed through short and long-term debt.

According to Insider Monkey’s third quarter database, 63 hedge funds were bullish on RTX Corporation (NYSE:RTX), compared to 56 funds in the prior quarter. Ken Fisher’s Fisher Asset Management is the largest stakeholder of the company, with 9.47 million shares worth $681.9 million.

Matrix Asset Advisors made the following comment about RTX Corporation (NYSE:RTX) in its Q3 2023 investor letter:

“In Q3, we started a new position in RTX Corporation (NYSE:RTX), formerly Raytheon Technologies, an aerospace and defense company that provides advanced systems and services for commercial, military and government customers worldwide. The company was formed in 2020 through the combination of Raytheon Company and the United Technologies Corporation aerospace businesses. We had previously owned United Technologies and were impressed with their CEO, Greg Hayes, now the CEO of RTX. The opportunity to purchase RTX came after the company disclosed a problem with an engine component that will result in a significant charge to inspect and replace. This is a fixable issue requiring time and money, but we believe the price decline provided a good opportunity to start a position in this highly profitable, well-managed company.”

10. General Dynamics Corporation (NYSE:GD)

Number of Hedge Fund Holders: 39

Latest TTM Net Income: $3.3 billion

General Dynamics Corporation (NYSE:GD) is a global enterprise with a focus on aerospace and defense, structured into four primary segments: Aerospace, specializing in business jet manufacturing and related services; Marine Systems, dedicated to submarine and ship construction; Combat Systems, engaged in armored vehicle and weapons production; and Technologies, providing IT and communication solutions.

At the end of September 2023, 39 hedge funds owned stakes in General Dynamics Corporation (NYSE:GD), according to Insider Monkey’s database. These stakes have a total value of more than $7 billion. Longview Asset Management was the largest stakeholder of the company in Q3.

9. CSX Corporation (NASDAQ:CSX)

Number of Hedge Fund Holders: 62

Latest TTM Net Income: $3.85 billion

Established in 1980 through the merger of the Chessie System and Seaboard Coast Line Industries, CSX Corporation (NASDAQ:CSX) is an American holding company with a primary focus on rail transportation and real estate in North America, among other industries.

On October 11, CSX Corporation (NASDAQ:CSX) announced a quarterly dividend of $0.11 per share, consistent with the previous payout. The dividend was scheduled for distribution on December 15 to shareholders of record as of November 30. This corresponds to a yield of 1.28% as of December 18.

At the end of Q3 2023, 62 hedge funds in Insider Monkey’s database reported having stakes in CSX Corporation (NASDAQ:CSX), down from 64 in the previous quarter. The overall value of these stakes is nearly $3.86 billion.

8. FedEx Corporation (NYSE:FDX)

Number of Hedge Fund Holders: 67

Latest TTM Net Income: $4.17 billion

FedEx Corporation (NYSE:FDX), previously known as Federal Express Corporation and later FDX Corporation, is an American multinational conglomerate holding company with a focus on transportation, e-commerce, and business services. The company is headquartered in Memphis, Tennessee. As of December 18, the company provides a quarterly dividend of $1.26 per share, resulting in a dividend yield of 1.79%.

FedEx Corporation (NYSE:FDX) was a part of 67 hedge fund portfolios at the end of Q3 2023, up from 62 a quarter earlier, according to Insider Monkey’s database. The stakes held by these hedge funds have a collective value of nearly $3 billion.

7. Honeywell International Inc. (NASDAQ:HON)

Number of Hedge Fund Holders: 60

Latest TTM Net Income: $5.41 billion

Honeywell International Inc. (NASDAQ:HON) is a publicly traded American multinational conglomerate corporation, operating across four main business areas: aerospace, building technologies, performance materials and technologies, and safety and productivity solutions.

On October 26, 2023, Honeywell International Inc. (NASDAQ:HON) released its Q3 2023 earnings report, showcasing a strong performance that met or exceeded the company’s expectations. The report indicated a 3% year-over-year increase in sales and a 2% growth in organic sales, propelled by significant organic sales expansion in commercial aviation, defense and space, and process solutions. Earnings per share for the third quarter were reported at $2.27, demonstrating minimal change on a reported basis compared to the previous year and a 1% increase year over year on an adjusted basis.

As of the end of the third quarter in 2023, 60 out of the 910 hedge funds surveyed by Insider Monkey had positions in Honeywell International Inc. (NASDAQ:HON). The largest shareholder among these is Two Sigma Advisors, led by John Overdeck and David Siegel, with an investment of $406 million.

6. Union Pacific Corporation (NYSE:UNP)

Number of Hedge Fund Holders: 90

Latest TTM Net Income: $6.37 billion

Union Pacific Corporation (NYSE:UNP), operating through its subsidiary Union Pacific Railroad Company, is engaged in the railroad business within the United States. The company provides transportation services catering to various industries and their respective products.

In October, Deutsche Bank upgraded the stock of the railroad company from Hold to Buy, attributing the decision to the anticipated rise in rail volumes, and concurrently assigned a $235 price target for Union Pacific Corporation (NYSE:UNP) stock.

At the end of September 2023, 90 hedge funds in Insider Monkey’s database reported having stakes in Union Pacific Corporation (NYSE:UNP), up from 87 in the previous quarter. The total value of these stakes is over $5.4 billion. With over 8.2 million shares, Soroban Capital Partners was the company’s leading stakeholder in Q3.

Cooper Investors made the following comment about Union Pacific Corporation (NYSE:UNP) in its Q3 2023 investor letter:

“The major focus in Texas was spending a day visiting operations of Union Pacific Corporation (NYSE:UNP), a Stalwart investment made earlier this year.

Our investigations into the railroad industry have felt like a history lesson of the late 19th Century, a peek into the Gilded Age. At this time railroads became a transformative force that connected the East Coast to the Western frontier, pushing the economic potential of US industry and commerce to new heights. Over a century later and despite technological upheaval, the freight railroads of North America still feel just as relevant and a key part of the new industrial age.

To own, operate and invest in a railroad is to be a part of the lifeblood of North America. It is to witness the movement of grain, concrete, steel, wood, energy, autos, and shipping containers across vast distances. These are irreplaceable assets that could not be built today, and for the most part have very few substitutes – UNPs tagline “Building America” certainly rings true…” (Click here to read the full text)

Click to continue reading and see 5 Most Profitable Industrial Stocks Now.