The Top Industrial Stocks for Long Term Investors

In spite of the Walmart warning, the economy still is okay for industrials…

Industrial Select Sector SPDR (XLI) is the blanket bet on the whole sector. There is no need to pick and choose winners.
General Electric (GE) is still not a start, but it is working on placing a base.
Lockheed Martin (LMT) has shed its March froth and now presents a much better value proposition.
3M Company (MMM) has value on its side, so dips this month are likely an opportunity to buy a fixed income stock.
Boeing (BA) taxi'ed its way only the list by way of its duopoly and pivotal global role for growth.
Owners of the Southwest (NYSE:LUV) stock has realistic expectations.
Caterpillar (CAT) is the king of machinery and must be on our list.

This week could be the most active week on the market in awhile. In addition to the Federal Reserve (Fed) rate decision, most of the mega-cap stocks report earnings. Talk about creating the potential for drama for no good reason. This has happened before, so it may all work out just fine. But there also might be new opportunities to buy great stocks on the cheap. Today, we will focus on finding the best industrial stocks to buy now.

I will be avoiding stocks like Union Pacific (NYSE:UNP), but not because they are bad. There just simply isn’t room to pick them all. The dividend reward is also pivotal for me. At 2.4%, it is lower than the 10-year government treasury. Also, a lot of companies will report earnings this week, so it will be tricky committing funds over such short-term uncertainty. In the long run, my thesis is that the leading industrial stocks are all worthy. So, it’s a matter of picking stocks with the best immediate upside.

For example, Whirlpool (NYSE:WHR) just reported earnings last night. The stock popped 2% on the headline, so this makes it somewhat unattractive to me. I prefer to not chase a stock up, so I will add it to my watch list of industrial stocks to buy on dips. There is also the matter of Wednesday, when risk will loom over the whole market. The Fed will deliver its decision on the monetary policy going forward. Experts are expecting between 1% and .75% rate hike. To be honest, it won’t matter much to businesses either way. What will have a bigger impact on stocks is their question and answer session. In the past, Fed Chairman Jerome Powell has used that as an opportunity to forecast his future intentions.

I have a hunch that he will be less hawkish than markets expects him to be. All mega cap companies have announced considerable hiring freezes. Some have also announced cuts. This abatement in wage inflation goes a long way toward controlling inflation. If companies aren’t spending, then its employees are not likely spending either. Additionally, the mortgage rates have already risen so much that it killed the refinancing market. That’s where a lot of the big ticket item spend came from.

Here are the 7 best industrial stocks to buy now:

Industrial Select Sector SPDR Fund (XLI)

The first of the industrial stocks to buy is the one that represents the whole sector. The Industrial Select Sector SPDR (NYSEARCA:XLI). is an exchange-traded fund (ETF) that represents the bunch. The top 10 companies are the best of the best and they represent 40.7% of the whole basket. Clearly, it’s an easy blanket bet on the success of the sector.

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Investors can simply buy shares in the XLI or bet on the call options. Using an ETF allows us to avoid single stock risks. Technically, XLI stock has risk at $80 per share. Even though investors have so far defended $84, if they lose it, they will capitulate. This would fill a gap in the stock that they left open in November of 2020. Coincidentally, that is the pivot level from the pre-pandemic highs and breakout.

General Electric (GE)

General Electric (NYSE:GE) made it onto my list almost out of pity. Management still has not started shining bright with the turn-around. Revenues are still declining, but they tell us that they have better focus. For me, it was its chart that stood out because it is so close to the 2020 lows. This leaves very little froth to lose in case of another correction.

The stock is rallying in pre-open after they reported their earnings. This is in spite of them cutting free cash flow. But management grew sales and earnings and they beat analyst expectations. For now, investors are happy with what they see during this challenging business environment. The inflationary pressures hit them hard, especially in the renewable energy segment. So, they pushed out about $1 billion of cash out in time.

Lockheed Martin (LMT)

It is ironic that I chose Lockheed Martin (NYSE:LMT) as an industrial stock to own. Back in March of this year, I shorted it using options. The trade went swimmingly. I also had the opportunity to catch the falling knife two times in the next few months. Needless to say, we have traded LMT stock quite well, which makes this decision easy.

I picked LMT for my list of industrial stocks to buy with profits in hand. Furthermore, it is still 16% below the highs of March. And since it just reported earnings, the headline risk from that has passed. LMT management rarely creates drama, so it should be clear sailing for a few weeks. Also technically, it has support below $370 per share that has been in contention for a while. The bulls are not likely to let those go too easily. And it pays its owners a respectable 2.84% in dividends.

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3M Company (MMM)

3M Company’s (NYSE:MMM) stock value most certainly earns it a spot on my list of industrial stocks to own. With mature companies like this, value is the most important metric. MMM has not been a growth story in a while, but it’s the cheapest it has been since at least 2015. Its price-to-sales ratio is 2.2 and its price-to-earnings ratio is 14. That’s 20% lower than its lowest year in the past seven.

If there is value here, then it’s not a mistake to own some. They reported earnings today at the time of writing and the market is reacting favorably so far with a small rally. But at $140 per share, I expect short-term sellers to emerge. I would wait a few days to see how they follow through. Management posted lower earnings, but they had news about a spin off of their healthcare division. Since it generates about $9 billion in cash from its operations, it has no problem delivering a fat 4.44% in dividend yield.

Boeing (BA)

I chose Boeing (NYSE:BA) as my fifth pick of industrial stocks today.

This company has not had a sales problem in a long while since it is a duopoly. Between it and France’s Airbus SE, they have all the business they can handle. In the last few years, they had special drama from the 737 Max, then the world suffered from the pandemic. Covid-19 grounded us all for months and that took a toll on Boeing’s clients. Airlines are still reeling from the crisis, but the horizon is calmer now. This is in spite of them having to deal with the global supply chain issues. Value is not going to be a problem since BA stock is pretty close to the pandemic lows.

Southwest Airlines (LUV)

I don’t particularly like airlines, but I usually don’t mind trading Southwest (NYSE:LUV). The sector doesn’t have the best reputation when it comes to execution on plans. They are always dealing with labor issues. Costs are a problem, but that’s where LUV stock is different.

Southwest was born on thin margins. In the beginning, it was the “no-frills” airlines. It was fun to fly, as the staff cracked jokes during the stressful process. I also remember the “friends fly free” program, which has since ceased. This company is a leaner and meaner business and it shows. They were able to navigate the pandemic shutdowns fairly smoothly. And they are now back to being cash flow positive from operations. Revenues are still down, but at least they are no longer hemorrhaging cash to run the business. Also judging by the price-to-sales, owners of LUV stock have realistic expectations.

Caterpillar (CAT)

Caterpillar (NYSE:CAT) stock is perhaps the most famous of the equipment and machinery industrial companies. It has corrected almost 30% since April and it is falling into support from the fall of 2020. There are likely to be buyers lurking there, so this makes for an opportune time to buy it. Management is due to deliver earnings soon, so I would not go all in right now. The reaction to those events can be wild.

Valuation is favorable here, so investors should not have too many bones to pick with its earnings. This company is in complete control of its finances as it did not even register a blip in cash from operations during 2020. The price-to-earnings ratio is under 15, so there isn’t much froth in CAT stock now. Nevertheless, I would still leave room for more downside just in case.

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On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.