Investors should buy “high-quality” industrial stocks that rely most on U.S. revenue because the group should perform better than the broad market in coming years, Oppenheimer & Co. said.
Oppenheimer screened for stocks using criteria including less than 50 percent of revenue from outside the U.S., a price- earnings ratio of less than 15 times forecast profit and earnings-per-share growth estimates higher than 10 percent for 2011 and 2012. It found 11 stocks, including delivery companies FedEx Corp. and United Parcel Service Inc., power-tool producer Stanley Black & Decker Inc. and security-systems maker Tyco International Ltd.
“Despite the sector’s poor performance in recent months, we continue to believe that industrials remain well-positioned to provide leadership in the coming years,” Brian Belski, the New York-based chief investment strategist at Oppenheimer, said in a note dated today. Industrials offer “opportunities even during challenging market environments,” he said, and investors should focus on “high-quality and defensive companies.”
A gauge of industrial companies in the Standard & Poor’s 500 Index has declined 1.8 percent in 2011 as of 1:45 p.m. in New York, compared with a 1.8 percent gain for the broad measure. U.S. manufacturing expanded in July at the slowest pace in two years, with today’s Institute for Supply Management’s factory index falling to 50.9 last month from 55.3 in June. Economists projected the index would drop to 54.5, according to a Bloomberg survey.
Belski forecasts the S&P 500 will rise to 1,325 at the end of 2011, less than the average estimate of 13 strategists surveyed by Bloomberg who predict a year-end close of 1,401.
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