8 Industrial Stocks With Big Upside Potential

BOSTON (TheStreet) -The industrials stock sector looks like a good place to pick up some bargains right now.

Its members are expected to post by far the strongest second-quarter earnings performance of any sector in the S&P 500, and earnings growth is one trait investors are actively seeking.

S&P has eight industrial stocks rated "strong buy," its highest rating, and the premiums on their prices to the firm's 12-month price targets range from 18% to 78%.

The industrials sector is highly diverse, ranging from aerospace and defense conglomerates to temporary employment agencies.

Industrial's expected second-quarter earnings performance, a rise of 8.7% over last year, is a standout in an otherwise bleak earnings season compared with the S&P 500 stocks, whose second-quarter earnings per share are expected to decline 1.2% year-over-year on average, according to an S&P Capital IQ review of analysts' outlooks. If that holds up, "(it) would mark the weakest EPS showing since the second quarter of 2009."

Only three sectors are seen posting second-quarter EPS year-over-year growth, said S&P, with industrials leading the way followed by information technology at 4.8%, and consumer staples at 1.3%.

On the flip side, materials companies' EPS are seen falling the most at 13.5% compared with last year in the quarter, followed by energy companies at a decline of 12% and telecommunications by 8.2%, S&P said.

But the share performance of the industrials sector is so far lagging the pack, up an average 4.4% this year versus the S&P 500's 7.7% gain.

S&P Capital IQ recommends a "market weight" position, "believing the sector's favorable fundamentals will be restrained by weakening global economic trends and industrial commodity prices as well as bearish technical readings."

Given that outlook, and the sector's diversity, any ebullience on industrials is not sector-wide, which means stock picking is in order.

But one example of the outperformance seen by select sector members is that of the bellwether Caterpillar (CAT), the world's largest maker of construction and mining equipment.

On Wednesday, it reported second-quarter profit jumped 67% to a quarterly record, because of growing demand for its construction and mining equipment from the U.S. and Asia. It also boosted its 2012 earnings outlook by 10 cents, to $9.60 per share. That helped its shares pop 1.4% on the day.

Here then are the eight industrials sector stocks rated "strong buy" by S&P, presented in inverse order of their potential share-price upside versus S&P's price target:

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