In this article, we discuss the 5 best industrial stocks to buy right now. If you want our detailed analysis of these stocks, go directly to 10 Best Industrial Stocks To Buy Right Now.
5. Builders FirstSource, Inc. (NYSE:BLDR)
Number of Hedge Fund Holders: 60
Builders FirstSource, Inc. (NYSE:BLDR) manufactures and supplies building materials, prefabricated components and value-added services in America. Their main clientele is from the residential construction sector, as well as repair and remodeling professionals. Operating in 550 locations across 40 states in the US, Builders FirstSource, Inc. (NYSE:BLDR) is one of the top industrial stocks to buy right now.
Ken Fisher’s Fisher Asset Management owns 190,754 shares in Builders FirstSource, Inc. (NYSE:BLDR), valued at $9.87 million. Overall, 60 hedge funds tracked by Insider Monkey were bullish on Builders FirstSource, Inc. (NYSE:BLDR) at the end of Q2, up from 48 in Q1.
Builders FirstSource, Inc. (NYSE:BLDR) acquired Building Materials and Construction Solutions (BMC) for $2.5 billion in August, which added significant value to the shares of both companies. This acquisition resulted in a powerful revenue and profit boost for Builders FirstSource, Inc. (NYSE:BLDR) for second quarter, and the company was able to increase the scale of operations, overcome stringent labor supply, and realize approximately $13o million to $150 million in synergies.
Here is what Merion Road Capital Management has to say about Builders FirstSource, Inc. in its Q3 2021 investor letter:
“I added to our position in Builders FirstSource (“BLDR”) during the quarter. BLDR is the largest national supplier of structural building products and value-added components to the residential construction market. They have been active in consolidating the industry, most notably with the merger of BMC earlier this year. Like other distributors, BLDR benefits from scale advantages that afford them a robust product offering, enhanced purchasing power, and fixed cost leverage. They will continue to acquire smaller competitors and have announced 5 new deals so far this year.
I view the strategic benefit of these acquisitions in three different buckets. There are the core tuck-in acquisitions of facilities and customer lists that increase scale and geographic reach. An example would be the company’s May acquisition of John’s Lumber, a lumber and specialty product distributor serving the Detroit MSA, at 0.5x revenue. There are product acquisitions that leverage their platform to increase distribution and improve the product offering. For instance, last month BLDR announced the acquisition of California TrusFrame, a designer and manufacturer of prefabricated components like trusses and wall panels, at 1.3x revenue. And lastly BLDR has begun investing in software and services. In June they spent $450mm on the purchase of WTS Paradigm, a software company that addresses the complexity around building configuration, estimating, and manufacturing, at 9.0x revenue. By utilizing software to in the planning process, WTS Paradigm cuts down on material and labor waste, ensures an optimal fit of product and design, and eases the contractor’s workload. BLDR has followed this up with a much smaller software acquisition in September.
BLDR is in the very early innings of their software investment, so it is difficult to pinpoint exactly how it will impact the company in the coming years. Management believes that there is a lot of low hanging fruit, pointing to a McKinsey study ranking the construction industry as second to last on overall digitization. If anyone has had any work done to their house, I am sure they can anecdotally attest to this. BLDR plans to leverage WTS Paradigm to increase internal productivity (i.e. improved estimating leading to fewer visits to the job site), cross-sell the software to existing clients, and drive greater adoption of value-added products. So thinking a few years out I think the goal would be to have higher margins on their commodity business, a greater mix of revenue coming from value added products, a stronger relationship with their customer, and an enhanced competitive advantage…” (Click here to see the full text)
4. FedEx Corporation (NYSE:FDX)
Number of Hedge Fund Holders: 61
FedEx Corporation (NYSE:FDX) is an American multinational conglomerate holding company engaged in transportation, business services, and e-commerce. Today, FedEx Corporation (NYSE:FDX) is known for its flagship air courier and shipment service, FedEx Express. FedEx Corporation (NYSE:FDX) is also a key contractor for the US government, since it assists the US Postal Service with the distribution of packages via FedEx SmartPost. FedEx Corporation (NYSE:FDX) operates worldwide, and is one of the top industrial stocks on our extensive list.
At the end of the second quarter, 61 hedge funds were long FedEx Corporation (NYSE:FDX).
On October 8, Citi analyst Christian Wetherbee kept a Buy rating on FedEx Corporation (NYSE:FDX), with a $300 price target.
Here is what East 72 has to say about FedEx Corporation (NYSE:FDX) in its Q3 2021 investor letter:
“It has been some considerable time that the variables which contribute to profit growth estimation have been so volatile; not just the strictly financial aspects but the impact on timing of pandemic delays, consequent labour shortages, port and shipping delays (and costs) and resultant inefficiencies in the supply chain. Christmas stock arriving in January isn’t much use – and for some unlucky folks, that will be the case.
As a good example, FedEx Q1FY22 results reported a $450million increase in “costs due to a constrained labour market which impacted labour availability, resulting in network inefficiencies, higher wage rates, and increased purchased transportation expenses. This was partially offset by higher package and freight yields, increased international export express shipments and a favourable net fuel impact”3. If all of the costs were labour related, that would be around a 6% “inefficiency” increase. No inflation, don’t forget….”
3. Caterpillar Inc. (NYSE:CAT)
Number of Hedge Fund Holders: 62
Caterpillar Inc. (NYSE:CAT) is an American Fortune 100 company, manufacturing machinery, engines, financial products, and insurance to companies through an organized dealer network worldwide. It is the largest manufacturer of construction equipment in the world. Caterpillar Inc. (NYSE:CAT) is a Dow Jones Industrial Average Index Component, and it is one of the best industrial stocks to buy now.
At the end of June, 62 hedge funds traced by Insider Monkey were long Caterpillar Inc. (NYSE:CAT), with stakes roughly worth $5.26 billion, up from 53 in Q1, with a total stake value of almost $4.95 million.
On October 14, David Raso from Evercore ISI kept an Outperform rating on Caterpillar Inc. (NYSE:CAT).
Here is what Oakmark Funds has to say about Caterpillar Inc. (NYSE:CAT) in its Q2 2021 investor letter:
“Having followed the company closely for north of a decade, Caterpillar is a name we know well. For much of its history, the operating efficiency of the company left much to be desired, but its underlying competitive position was rarely in doubt. A series of actions over the past decade (e.g., LEAN implementation, improved service mix, optimized manufacturing footprint) helped to narrow the gap between Caterpillar’s potential and its realized results, driving material margin expansion and strong share price performance. In our view, the company remains among the highest quality industrials in the market, but its underlying business is cyclical, which can translate to large swings in both performance and investor sentiment over short time periods. Our ability to focus on the long-term, sustainable earnings power of a business (rather than getting distracted by near-term fluctuations) is our most significant edge when investing in cyclical businesses. Due to the inherent volatility in Caterpillar’s end markets and operating performance, we suspect we’ll have a future opportunity to own this high-quality business at a more attractive price once the cycle turns and today’s enthusiasm wears off.”
2. Union Pacific Corporation (NYSE:UNP)
Number of Hedge Fund Holders: 69
Union Pacific Corporation (NYSE:UNP) is a freight railroad mega company, operating about 8,300 locomotives across 23 US states. Union Pacific Corporation (NYSE:UNP) is the second largest railroad in the US, and forms a duopoly in the Western US with BNSF Railway.
Ken Fisher’s Fisher Asset Management is the largest stakeholder in Union Pacific Corporation (NYSE:UNP), with 4.76 million shares worth $934.5 million. Overall, 69 hedge funds in Insider Monkey’s exclusive database reported owning stakes in Union Pacific Corporation (NYSE:UNP) at the end of Q2.
RBC Capital analyst Walter Spracklin, on October 22, raised the price target for Union Pacific Corporation (NYSE:UNP) from $227 to $252, with an Outperform rating on the stock.
Here is what Vltava Fund has to say about Union Pacific Corporation (NYSE:UNP) in their Q1 2021 investor letter:
“There was a slight change in Vltava Fund’s portfolio in the first quarter. We sold shares of Union Pacific. It was one of three stocks we bought a year ago at the market bottom. Although from a P/E viewpoint this was one of our most expensive purchases ever, the shares worked out quite well, and, when they were more than 90% higher at the beginning of this year, we decided to take profit and put the money into stocks with more attractive valuations.”
1. Applied Materials, Inc. (NASDAQ:AMAT)
Number of Hedge Fund Holders: 73
Applied Materials, Inc. (NASDAQ:AMAT) ranks first on our list of the best industrial stocks to buy right now. Applied Materials, Inc. (NASDAQ:AMAT) is an American corporation providing equipment and software to develop semiconductor chips to be used in electronics, solar products, and hardware for computers, smartphones, and televisions. Applied Materials, Inc. (NASDAQ:AMAT) expanded its operations by a series of strategic mergers and acquisitions within the semiconductor and electronics industry over the years.
Applied Materials, Inc. (NASDAQ:AMAT) is a popular industrial stock among hedge funds. At the end of Q2, 73 hedge funds were long Applied Materials, Inc. (NASDAQ:AMAT), with a total stake value of approximately $4.59 billion. Cantillon Capital Management is the leading shareholder in Applied Materials, Inc. (NASDAQ:AMAT) as of June this year, with with 3.66 million shares worth $472.3 million.
Piper Sandler analyst Weston Twigg, on October 14, kept a Neutral rating on Applied Materials, Inc. (NASDAQ:AMAT), with a $130 price target. The analyst believes that Applied Materials, Inc. (NASDAQ:AMAT) can achieve the targets it has set for 2024, and with growing demand for semiconductors, the shareholder returns should remain high.
Here is what Vulcan Value Partners has to say about Applied Materials, Inc. (NASDAQ:AMAT) in its Q2 2021 investor letter:
“We purchased Applied Materials Inc. during the quarter. Applied Materials provides materials engineering solutions for semiconductor fabrication equipment and manufacturing tools for advanced displays. The industry has consolidated, leaving five companies that make up approximately 70% of the market. Applied Materials is the largest of the five. Key shifts in the industry are driving demand for more complex capital equipment. Among these shifts are the acceleration in digital transformation of the global economy, the slowing of Moore’s law, and increased application of artificial intelligence (AI). Growth in the company’s services segment creates a predictable revenue stream, enduring customer relationships, and better visibility into future technologies and client needs.”
You can also take a look at 11 Best Dividend Aristocrats with over 3% Yield and George Baxter’s Sabrepoint Capital is Buying UPWK, MSFT, and More.
