- Investors should take profits on machinery stocks ahead of earnings, J.P. Morgan analysts say, as valuations are stretched after the sector outperformed the S&P in Q1 +17% vs. +1.3%, and investors likely will have little tolerance for weaker than expected performance.
- The firm suggests avoiding Deere (DE +1.9%), Agco (AGCO +3.5%) and CNH Industrial (CNHI +3%) on weaker fundamentals with downside risk to the market outlooks for each region, and Paccar (PCAR +2.9%) on weaker NAFTA HD truck demand vs. its guide for a 12% decline in U.S. and Canada retail sales.
- However, JPM likes Allison Transmission (ALSN +2.4%) heading into Q1 as it has underperformed peers while its exposure to HD Class 8 long haul is limited and MD orders are up 5% YTD.
- Rated Neutral CAT, MTW, JOY, NAV, TEX, MCRN, PH, KMT, ETN, ITW.