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Barron's: 4 Industrial Stocks to Bet on a Recovery

Barron's: 4 Industrial Stocks to Bet on a Recovery

By    |   Wednesday, 24 June 2020 08:46 AM

Investors with a sharp eye can still make some savvy moves as America’s industrial economy starts to emerge from its deepest hole in years.

Factories shut down or curbed output amid the pandemic as the U.S. industrial production index has fallen nearly 16% since the beginning of the year, roughly as steep of a decline as during the financial crisis.

Yet demand is starting to pick up across the industrial landscape, and there’s time to take advantage of the emerging rebound. “We’re seeing markets come back a little faster than expected,” says analyst Andy Kaplowitz, head of Citigroup’s U.S. industrials team.

More than 90% of diversified manufacturers’ production facilities are back online, Kaplowitz says.

Barron’s found four industrial companies whose stocks look compelling: midsize manufacturers RBC and Wabtec (WAB), and large-caps Emerson Electric (EMR), and Ametek (AME). All are high-quality operations that should benefit from a cyclical recovery in the U.S. and global economies.

“With one of the highest exposure to China in our [coverage], Emerson should be one of the main beneficiaries from recovery in the country,” Kaplowitz says.

However, JPMorgan Chase & Co. are among the experts warning that investors should be more selective in the next six months as asset returns are likely to diverge because liquidity “cannot paper over specific weaknesses indefinitely.”

An “indiscriminate approach” to a portfolio would largely have worked in April and May, when most financial assets rallied -- a typical result at a turning point in the cycle, according to strategists led by John Normand in a June 19 note, Bloomberg reported.

They cited extreme positioning and liquidity dynamics, plus central-bank asset purchases, as contributing to increased correlations when economies enter recessions and then move to expansions.

“But typically these high correlations mean-revert to their long-term averages within a few months, in part because the pace of quantitative easing slows and in turn allows country, sector and company-specific factors to reassert themselves,” the strategists wrote. The second half of 2020 “should bring this sort of differentiation.”

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Investors with a sharp eye can still make some savvy moves as America’s industrial economy starts to emerge from its deepest hole in years.
industrial, stocks, shares, economy, investors
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2020-46-24
Wednesday, 24 June 2020 08:46 AM
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