Industrial stocks have easily outpaced the broader market over the past three months, but Barclays analyst Julian Mitchell believes some of the forces that have propelled the group higher are set to reverse.
Bulls have overstated the group's structural tailwinds, Mitchell asserts, and the combination of accelerating growth, high incremental margins, low interest rates and a weak dollar is unlikely to persist; as a result, he initiates the industry with only a Neutral rating.
Within the group, Mitchell likes Emerson Electric (NYSE:EMR) and Honeywell (NYSE:HON) for their exposure to automation; United Technologies (NYSE:UTX) and Ingersoll-Rand (NYSE:IR) for their exposure to "buildings end-markets"; and recent underperformers such as Allegion (NYSE:ALLE) and Danaher (NYSE:DHR) "because they didn't get back tax cuts."
Mitchell is no fan of GE, which he rates at Neutral with a $16 price target, as he still sees too many material downside risks ahead including a likely reduction to management's 2018 guidance and low expectations for any upside from a new Power cycle given a "stretched" balance sheet.
Subscribe for full text news in your inbox