We recently published a list of 10 Best Industrial Stocks to Invest in Now. In this article, we are going to take a look at where 3M Company (NYSE:MMM) stands against other best industrial stocks to invest in now.
Industrial stocks were on a roll in 2024 as the overall sector ended the year up 26% on navigating deteriorating economic conditions, geopolitical uncertainty and heightened inflation. At the same time, a slowing Chinese economy was expected to hurt sentiments in the sector, but that was not the case.
Fast forward, the outlook in the industrial sector remains optimistic despite growing concerns about trade tariffs that could affect deals and operations. US President Donald Trump has threatened to impose a new 25% tariff on all steel and aluminum imports.
Trump’s trade policy overhaul would involve a significant increase in tariffs on top of the current metals duties. According to data from the American Iron and Steel Institute and the government, South Korea, Vietnam, Brazil, and Canada are the top three countries from which the United States imports steel. As a result, the tariffs have the potential to shake the nation’s industrial sector.
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“Canadian steel and aluminum support key industries in the U.S. from defense, shipbuilding and auto. We will continue to stand up for Canada, our workers, and our industries,” Canadian Innovation Minister Francois-Philippe Champagne posted on X.
Nevertheless, there is growing optimism that a return of manufacturing to the US from other countries amid the trade tariffs would be a boon for the sector. Activities in the industrial sector are expected to improve significantly amid the growing push to reinvest in domestic infrastructure.
The need to bring supply chains onshore to avert the ever-growing geopolitical risk is another factor that should bolster sentiments in the industrial sector. Additionally, heightened investments in electrification and the development of artificial intelligence should also have a positive impact. The fact that only a quarter of the $1.9 trillion worth of projects announced since 2020 have entered into the construction phase underscores the tremendous opportunities around industrial stocks.
The expected surge in spending on domestic manufacturing under the new administration should greatly benefit equipment rental specialists’ electrical equipment companies, among others. The commercial aerospace sector is another segment expected to be on a roll after years of slowdown following the COVID-19 pandemic. A shortage of new planes as travel recovers is presenting tremendous opportunities for companies in the aerospace segment.
Interest rate cuts as part of an effort to steer the economy into a soft landing is another tailwind that should positively impact the industrial sector in 2025. Lower interest rates are expected to stimulate the housing sector on mortgage dropping, therefore attracting more home buyers. The net effect should be a strong demand for building materials and equipment that benefit construction companies and those in the repair and remodeling business.
Additionally, the industrial sector could receive a significant boost from China coming through on a new economic stimulus and major structural changes. Such a move is expected to boost activities in the sector and increase demand for raw materials and equipment, which should bolster the industrial sector.
“The sentiment around the China market obviously has been pretty poor, not just recently, but for some time now. I think investors are ignoring some of these positive developments,” said Andrew Swan, head of Asia equities at Man Group
Trump’s trade policies, lower interest rates, and China’s economic stimulus are some of the tailwinds likely to impact the global industrial sector positively. A resilient US and global economy that steers clear of recession amid low interest rates are some of the reasons to be optimistic about the overall industrial sector outlook.
Our Methodology
We scanned the US stock market using a screener and analyzed online rankings to compile the list of the 10 best industrial stocks to invest in now. We filtered out those with high hedge fund holdings from an initial list of 25-30 stocks. The final stocks are arranged in ascending order of hedge fund sentiments as of Q3 2024. We also focused on stocks with strong fundamentals and significant long-term investment potential.
At Insider Monkey, we are obsessed with 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).
A specialized industrial laboratory, filled with high-tech machinery for producing abrasives.
3M Company (NYSE:MMM)
No. of Hedge Fund Holders: 82
3M Company (NYSE:MMM) provides diversified technology services. It offers industrial abrasives and finishing for metalworking applications and auto body repair solutions. After rallying by more than 90% last year, the stock is still edging higher, affirming firm investor conviction about its long-term prospects.
The company’s sentiments and prospects have improved significantly following a restructuring drive focused on the spin-off of the healthcare business, job cuts, changing 3M Company’s (NYSE:MMM) global go-to-market approach, and reducing management layers. Additionally, 3M has seen its growth metrics improve significantly owing to increased focus on research and development followed by improving operational performance and deployment of capital.
The efforts are already paying off, given that the operating margin has improved from 18.6% in 2023 to 21.4% as of last year. Earnings per share was up by 21%. In addition, management predicts a 2% to 3% growth in organic sales in 2025, with the operating margin improving to 23.3%, at the back of a 100% free-cash-flow conversion rate. Earnings growth is expected to be accelerated in the upcoming years by an enhanced R&D pipeline, a renewed emphasis on 3M Company’s (NYSE:MMM) industrial business, and numerous operational improvements.
Overall, MMM ranks 1st on our list of best industrial stocks to invest in now. While we acknowledge the potential of MMM to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than MMM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
