3 Industrial Stocks Set To Soar On Increased Capital Spending

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The coronavirus pandemic led to historic government stimulus programs, as seen with the most recent bill this month. The stimulus has so far been a boon to consumer spending, but the best has yet to come for certain stocks. Like consumers, businesses have also benefited from the stimulus measures. Many companies now have hordes of cash on the books, which is expected to increase capital spending, directly benefiting industrial stocks.

That’s why I am recommending my top three industrial stocks for the month: Deere & Company (DE), Eaton Corporation (ETN), and Cummins Inc. (CMI). But before I get into evaluating those stocks, let’s recap the week.

Market Commentary

Stocks were up on Monday, March 22, with technology leading the way as interest rates fell. The 10-year Treasury yield dropped to 1.69%, providing a tailwind for equities. Stocks reversed course on Tuesday, with cyclical stocks taking the brunt. Cyclical stocks have been climbing higher due to stimulus measures and an improving economy. The drop was likely a mix of profit-taking and renewed COVID-19 worries.

The market was mixed on Wednesday, as the price of oil jumped and economic data confirmed the strength in the economy. Value stocks were up, while growth stocks underperformed. Tech stocks lagged again on Thursday, with value shares up on a day with high volatility due to quarter-end rebalancing. The market was up again Friday, with energy stocks benefiting from higher oil prices as the Suez Canal blockage continued.

Market Outlook

We all know the market’s latest run is predicated on an improving economy, and the one industry that benefits the most from an improving economy is industrials. Right now, there are many companies not only sitting on a ton of cash, but at near-record levels. This is mainly due to the massive stimulus efforts over the past year and companies hoarding cash in a recessionary period.

But we are no longer in a recessionary environment. As the economy reopens, there should be an influx of capital spending (Capex). That money will be spent on infrastructure and technological upgrades, as demonstrated by the Philadelphia Fed’s Future Capital Expenditure indicator heading close to record highs. This is great news for industrial companies that provide machinery for companies will be buying to upgrade their operations.

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