Turning to industrials? Here are the 3 Best Industrial Stocks to Buy Now (September 2022)

So, you are looking for some of the best Industrials stocks to invest in right now. Fortunately, you are in the right place as this is exactly what I am setting out to answer for you today. Not only will you receive the 3 best stocks in the Industrials sector, you will also learn why the Industrials sector might be one of the best sectors in the stock market to invest in right now. So without further ado, let's get into it!

The first thing we need to do is discuss the Industrials sector, as all of the stocks in this analysis stem from that sector of the stock market. The Industrials sector has performed well over the past 3-Month period, as the industry is up by an average of 2.91%. This good recent performance has caught the eye of investors looking to buy the recent momentum within the Industrials sector. Due to the recent momentum in the Industrials sector, it is one of the most exciting sectors in the market right now, and in my opinion, has the most potential for future growth.

Now that we have determined Industrials to be an attractive sector to invest in, we need to find the 3 best stocks in the Industrials sector to buy right now to maximize our potential returns.

#3: Bloom Energy Corp. (NASDAQ: BE)

There are a couple of reasons why I chose to add Bloom energy corporation to the list of my 3 best Industrials stocks to buy right now. One of which is the fact that BE's dividend yield is 0% which is below the weighted-average dividend of the Industrials sector, which is currently 2.39%. Now you might be thinking “why is this a reason why you like the stock?”, well when considering the fact that the BE stock is able to generate an ROE of 428.13% (smaller than the Industrials sector weighted average), I would prefer the BE stock to pay out a low dividend. This is due to the fact that by offering a smaller dividend, Bloom energy corporation can retain more of their net income, which they can invest and yield a lower return for their investors than they would by distributing a higher dividend. Bloom Energy is on this list as a growth-focused stock pick for the industrials sector.

Over the last 5 years, BE has been able to grow its revenues by a CAGR of 95.37%, which is greater than the Industrials sector's average 5-Year Revenue CAGR of 32.43%. The fact that BE has a higher revenue CAGR than their sector is a very good sign as it means that they are likely to gain market share in the Industrials sector. Bloom Energy's revenue growth rate has slowed in more recent times as their 3-year revenue growth rate is -49.69%. We can infer that this means Bloom energy corporation's business is currently evolving from its growth phase. This is not good nor bad, however, it may cause us to change the weight we assign to certain metrics to accommodate for the state of their business.

Bloom Energy has been performing well over the past 5 days, especially when comparing its performance to the market. Over this timeframe, the BE stock has gained a little over 3% whereas the market has fallen 3.5%. This recent strength is appealing to us as it may indicate momentum, which can help us achieve a good return in a relatively short timeframe. May news publishers have attributed BE's recent strength to the climate bill, as they believe bill will come into law and benefit the BE stock.

Bloom energy corporation has received its fair share of ”buy” ratings recently, with the most recent coming from Mark Strouse who is an analyst on behalf of J.P. Morgan. Mark Strouse published their bullish outlook for the BE stock on Aug 25, 2022, citing a price target of $31 for the stock. This price target update represents an upside for BE shares of 23.26%. Furthermore, Mark Strouse's price target is on the higher end of analyst price targets as the average analyst price target for the BE stock is currently $27.28. I believe this price target is resulting from their growth potential as there is not much value behind their stocks when using traditional valuation methods.

As a result of this, the BE stock seems to be the best growth play in the industrials sector and can benefit from recent news (climate bill) and recent price strength to help us achieve a quick return.

#2: 3M Corporation (NYSE: MMM)

There are a couple of reasons why I chose to add 3m company to the list of my 3 best Industrials stocks to buy right now. One of which is the fact that MMM's dividend yield (of 4.71%) is above the weighted-average dividend of the Industrials sector, which is currently 2.39%. Additionally, the fact that 3M's dividend falls between 2-6% is great news as this is considered the “ideal range” for dividend yields. This is due to the fact that offering such a dividend will be worthwhile for dividend investors while retaining enough of the company's earnings in order to invest in projects that will generate a greater return for investors. Furthermore, 3M is a staple in the industrials sector and given their current price I find it hard to go wrong in investing in their company.

3m company offers great value when comparing their financial ratios to that of the average ratios of the Industrials sector. 3m company's value will be displayed by comparing the 2 most commonly used comparable ratios; P/E, and P/B. Firstly, the MMM stock currently has a P/E ratio of 17.66, and a P/B ratio of 5.25, compared to the Industrials sector averages of 22.06, and 13.97, respectively. Using this information, we can determine that the MMM stock needs to experience changes of 24.93%, and 165.82%, to be considered “at fair value” (respectively). By taking a simple average of these figures we arrive at an expected increase of 95.38% for the MMM stock.

MMM is coming off of a large decrease of -3.64% which occurred on Aug 26, 2022. This decrease was the result of recent earplug lawsuit news that came out. 3M is currently being sued for providing the US army with faulty earplugs, and their main legal tactic was to declare bankruptcy (for the smaller subsidiary being sued), however, a judge recently ruled that they can sue the parent company (3M) which resulted in their stock shedding $5.2/share. This dip has provided a great opportunity to become a MMM investor as when their stock has historically experienced such a decrease it has returned an average of 4.02% over the next 3 months.

MMM's gross profit margin is 44.51% which is greater than the Industrials sector average of 31.65%. The fact that MMM has a gross profit margin that is 12.85 percentage points greater than their sector is fantastic as it will enable 3m company to make more income than an average Industrials company. This should help them to overperform the sector and is a good reason why they are #2 on this list.

Overall, this lawsuit news combined with recent earnings has created the perfect storm (for bears) for the 3M stock. The MMM stock is down 13% over the past month, which is unheard of for their stock. Furthermore, their stock is trading near their covid lows and could be a great opportunity to buy the dip.

#1: ZIM Integrated Shipping Services Ltd. (NYSE: ZIM)

Zim integrated shipping services ltd. (NYSE: ZIM) has more than earned its place among the top 3 Industrials stocks to buy right now. Zim integrated shipping services ltd. has consistently displayed its ability to turn a profit on its investments in both the use of assets and the deployment of its capital. This is the result of ZIM's ROA being 54.02% and its ROIC being 93.63%. Furthermore, if this wasn't enough, Zim integrated shipping services ltd.'s ROA and ROIC are both greater than the average of the Industrials sector, which are 44.47% and -0.96% respectively. For this reason among others, I have chosen the ZIM stock to fill the #2 position in this article as a mainly value-focused stock.

Over the last 5 years ZIM has been able to grow its revenues by a CAGR of 181.13%, which is greater than the Industrials sector's average 5-Year Revenue CAGR of 32.43%. The fact that ZIM has a higher revenue CAGR than their sector is a very good sign as it means that they are likely to gain market share in the Industrials sector.

To further demonstrate the value behind Zim integrated shipping services ltd.'s we will compare the 2 most commonly used financial ratios; P/E, and P/B. Firstly, the ZIM stock currently has a P/E ratio of 0.79, and a P/B ratio of 0.9 compared to the Industrials sector averages of 22.06, and 13.97 respectively. Using this information, we can determine that the ZIM stock needs to experience changes of 2,680%, 1,452%, to be considered “at fair value” (respectively). By taking a simple average of these figures we arrive at an expected increase of 2066% for the ZIM stock.

Furthermore, if ZIM's value wasn't enough, they are currently down 25% over the past week. This recent dip has scared many investors, however, it may give us a chance to “buy when there is blood in the streets”. This recent dip has extended from their Q2 2022 earnings report, (released 13 days ago) in which ZIM reported an EPS miss of 13.79% and a revenue miss of 5.25%. However, these earnings were fantastic as they increased all of their margins (net, gross, EBIT etc) however it was short of analyst expectations. We can take advantage of this and buy the dip as the recent ZIM price decrease was somewhat nonsensical.

As you can see, there is a lot of value behind the ZIM stock even before its recent 25% dip. However, the return potential for investment in the ZIM stock has only multiplied due to the recent price movement. Take advantage of this “fire sale” and consider buying the ZIM stock now.

Conclusion:

Whether you agree with my picks or not, the Industrials sector seems to be one of the best sectors in terms of its growth potential. I hope that this analysis conveyed that and potentially piques your interest in a couple of the stocks listed throughout. If you would like to do more research on some of my picks, you can do so here (AAPL is just a placeholder, search for other stocks).

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