In this article, we will discuss the 8 Most Profitable Industrial Stocks to Invest In.
Total US industrial net absorption in H1 2024 came in at 67.1 million square feet, reflecting a significant decline from the historic peak in absorption in 2021, when it was 749.3 million square feet for the year, as per historical data provided by CoStar. However, amidst the uncertainty regarding the economic outlook for H2 2024, the current NAIOP Industrial Space Demand Forecast expects that the national industrial real estate market should continue the trend of positive net absorption.
As per NAIOP, the Commercial Real Estate Development Association, total net absorption for H2 2024 is expected to be ~114 million square feet. The full-year absorption in 2025 is expected to be ~249 million square feet, and absorption in the first half of 2026 is forecast to be ~154 million square feet. With the expectation of lower rates moving forward, the potential for increased industrial leasing activity in H2 2024 and onward remains significant. With interest rates trending lower, businesses are expected to reaccelerate their capex plans that have slowed since 2022’s increase in rates.
Deal Activity in The Industrials and Services (I&S) Sector
PwC reported that the industrials and services (I&S) sector should see a steady pace of deal activity moving forward. Despite the market challenges, such as elevated interest rates and regulatory concerns, both buyers and sellers are resorting to the M&A market in a bid to drive further growth and value creation. As per PwC, in the current environment, companies continue to evaluate portfolio performance to determine whether or not they should divest non-core assets to finance strategic and corporate investments.
Deal activity in Aerospace & Defence should accelerate in H2 2024 and 2025. M&A is expected to focus on small to midsize acquisitions instead of larger deals, with companies seeking to address strategic and labour talent gaps and secure supply chains and production capacity via vertical integration. The commercial aerospace sector should continue to grow in H2 2024. PwC expects continued activity in the aircraft aftermarket segment, courtesy of aging military and commercial fleets.
Next, deal activity in the industrial manufacturing sector should accelerate in the near to medium term. This is expected to be driven by increased investor optimism about the industry and stability in the broader macroeconomic environment. Decarbonization and other environmental considerations are expected to remain the focus areas. PwC mentioned that there is a strong interest in manufacturing processes pivoting from metals to more sustainable raw materials.
For Industrial Decarbonization, International Cooperation Is a Must
As per the World Resources Institute, the industrial sector makes up for more than a quarter of total global GHG emissions, with cement and steel production making up for most of the part. In the US, the federal government announced a $6.3 billion investment, which is focused on low-emission industrial demonstration projects. The selection has been done across industrial subsectors, such as decarbonizing cement and steel plants. Also, the European Council signed off on new regulations in a bid to reduce emissions and accelerate efficiencies in industry.
World Resources Institute believes that international collaboration remains a key in achieving climate goals in heavy industries. This is because industrial products are traded throughout borders to cater to global value chains. Shared innovation and learning remain important when it comes to accelerating the deployment of decarbonization technologies.
A bustling industrial facility with a series of chemical filtration systems on display.
Our Methodology
To list the 8 Most Profitable Industrial Stocks to Invest In, we used a Finviz screener to screen for stocks from the industrial sector. After getting the list of 30-40 stocks, we narrowed our list by choosing the ones having positive net income on a TTM basis and a 5-year net income CAGR. Finally, the following 8 most profitable industrial stocks were ranked in ascending order of their hedge fund sentiments, as of Q2 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
8 Most Profitable Industrial Stocks to Invest In
8) Saia, Inc. (NASDAQ:SAIA)
Net Income on TTM Basis: $380.7 million
5-Year Net Income CAGR: 27.52%
Number of Hedge Fund Holders: 25
Saia, Inc. (NASDAQ:SAIA) operates as a transportation company in North America.
Saia, Inc. (NASDAQ:SAIA) continues to expand its footprint, open up new terminals to increase service density and capture market share from regional and non-public carriers. As a result, the company has been tagged as one of the most dynamic players in the transportation sector. Saia, Inc. (NASDAQ:SAIA)’s strategy revolves around its ambitious network expansion plan. The opening up of new terminals should drive long-term growth and improve service density for customers.
Wall Street analysts opine that as and when the new terminals mature, they should contribute significantly to the company’s operational efficiency and profitability. The increased geographic coverage should also enhance Saia, Inc. (NASDAQ:SAIA)’s value proposition to national accounts, which should result in more lucrative and long-term contracts.
Moreover, the recent trend of nearshoring, in which companies move production closer to end markets, is expected to benefit Saia, Inc. (NASDAQ:SAIA). As businesses continue to relocate manufacturing operations to North America, there will be an increase in domestic freight movement, primarily in the LTL segment. Its expanded network places the company in an excellent position to capitalize on this trend. Saia, Inc. (NASDAQ:SAIA) might see an increase in shipment volumes and potentially improved pricing power as and when the demand for LTL services grows.
Citigroup assumed coverage on 9th October. They gave a “Buy” rating and a $518.00 price objective. Artisan Partners, an investment management company, released its second-quarter 2024 investor letter. Here is what the fund has to say:
“Among our top detractors were Lattice Semiconductor, Melrose and Saia, Inc. (NASDAQ:SAIA). Saia operates in less-than-truckload shipping, a structurally attractive area of transportation that features several solid franchise characteristics supported by real estate assets and network advantages. Given high expectations heading into its earnings release, a narrow miss largely attributable to macro weakness sent shares falling. However, we feel confident going forward for a number of reasons: industry pricing remains rational; the company continues to grow its terminal count (15–20 additions this year); the bankruptcy of key competitor Yellow in August 2023 has left a void in the market; and its valuation remains attractive, in our view.”
7) Axon Enterprise, Inc. (NASDAQ:AXON)
Net Income on TTM Basis: $290.7 million
5-Year Net Income CAGR: 81.03%
Number of Hedge Fund Holders: 36
Axon Enterprise, Inc. (NASDAQ:AXON) is engaged in developing, manufacturing, and selling conducted energy devices (CEDs) under the TASER brand in the US and internationally.
Axon Enterprise, Inc. (NASDAQ:AXON)’s long-term growth trajectory is expected to be aided by its continuous innovation in product offerings and expansion into new markets. The company made numerous strides in AI, real-time operations, and drone technology. As a result, Axon Enterprise, Inc. (NASDAQ:AXON) has positioned itself as a frontrunner in law enforcement technology. The demand for the company’s core products, like TASER devices and body cameras, is robust.
It has successfully rolled out new software categories, that continue to contribute to its software revenue growth. This diversification of product lines enabled Axon Enterprise, Inc. (NASDAQ:AXON) to maintain a healthy competitive edge in the market. The company continues to substantial inroads in international markets, with international bookings doubling YoY. Market experts opine that expansion beyond the traditional US base should open up new avenues for growth. This should reduce the dependence on a single market.
Notably, the integration of AI into software solutions should offer law enforcement agencies more sophisticated tools for data analysis and decision-making. This is expected to drive increased adoption rates and customer loyalty. Moving forward, successful expansion into international markets, a well-diversified product portfolio, and market leadership are expected to act as tailwinds.
Baird upped its price target on the shares of Axon Enterprise, Inc. (NASDAQ:AXON) from $360.00 to $400.00, giving an “Outperform” rating on 10th September. Conestoga Capital Advisors, an asset management company, released its first-quarter 2024 investor letter. Here is what the fund said:
“Axon Enterprise, Inc. (NASDAQ:AXON): This manufacturer of the TASER stun gun and body cameras has been among the top contributors to the Small Cap Composite’s total return since first added to the portfolio in 2019. Its market capitalization now exceeds $20 billion. Conestoga trimmed the position over the past few years as the market capitalization rose and, in early 2024, we fully removed AXON from client portfolios.”