We recently compiled a list of 8 Most Profitable Industrial Stocks to Invest In. In this article, we will look at where Deere & Company (NYSE:DE) ranks among the most profitable industrial stocks.
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.
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).
Deere & Company (NYSE:DE)
Net Income on TTM Basis: $8.224 billion
5-Year Net Income CAGR: 19.92%
Number of Hedge Fund Holders: 50
Deere & Company (NYSE:DE) is engaged in the manufacture and distribution of various equipment worldwide.
Deere & Company (NYSE:DE) remains proactive when it comes to cost management and operational efficiency. The company implemented strategic headcount reductions as part of the operational adjustments. Furthermore, the company’s commitment to innovation and technological advancements are the key focus areas. Its product changeovers and technological ambitions continue to influence workforce changes and operational strategies. This push towards advanced technologies should help the company maintain a competitive edge amidst an evolving landscape.
Deere & Company (NYSE:DE)’s strong brand equity, together with its leading technology stack, offers significant competitive advantages. Wall Street is quite optimistic about the company’s continued investment in technological innovations, mainly in precision agriculture and autonomous equipment.
Moreover, the integration of AI, machine learning, and IoT in the products is expected to result in improved efficiency for customers. This could potentially justify the premium pricing and drive higher margins. Overall, strong market position in key product segments, effective and disciplined cost management, and operational efficiency are expected to aid its growth momentum.
Citigroup upped its price objective on shares of Deere & Company (NYSE:DE) from $395.00 to $420.00, giving a “Neutral” rating on 9th October. Parnassus Investments, an investment management company, released the second quarter 2024 investor letter. Here is what the fund said:
“Deere & Company (NYSE:DE) stock dropped after the company released underwhelming fiscal second-quarter earnings and lowered its 2024 guidance. Although the company is going through an equipment demand downturn, we believe it will demonstrate better-than-expected through-cycle performance.”
Overall DE ranks 3rd on our list of the most profitable industrial stocks to invest in. While we acknowledge the potential of DE as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than DE 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 was originally published on Insider Monkey.