3M, Xylem lead improving outlook for industrial stocks, analyst says

|By:, SA News Editor

3M (MMM +0.6%) and Xylem (XYL +1%) are among several industrial stocks initiated with Buy ratings at Credit Suisse, which sees cause for optimism in a sector that has been battered this year by trade war worries.

Organic sales will moderate in H2 due to difficult comparisons, but macro trends led by capital spending on energy-related projects in the U.S. are still supportive for the stocks, says Credit Suisse's John Walsh.

Walsh concedes that trade and inflation are risks to his bullish outlook, but he believes the better companies in the group have multiple levers to pull to improve earnings, which help to offset macro issues and the cyclical nature of the sector.

Walsh says his Outperform-rated stocks - which also include Eaton (ETN), Ingersoll-Rand (IR +0.6%), Lennox International (LII -1.1%) and Allegion (ALLE +0.6%) - also benefit from secular trends such as the shift from analog to digital technologies, ongoing simplification and integration of business operations, and savvy free-cash-flow deployment.

The firm rates Emerson (EMR +0.8%), Flowserve (FLS +0.3%), Fortive (FTV +0.6%), General Electric (GE -3.4%), Honeywell (HON +1.5%) and Johnson Controls (JCI -2.8%) at Neutral while initiating Rockwell Automation (ROK +1%) at Underperform.

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