Worried the Rally Can't Last? These 2 Rising Industrial Stocks Provide Ballast and Growth
As stocks reach nosebleed valuations, we wouldn't blame you for getting nervous. This record-smashing rally seems too good to be true. But who wants to sit on the bench when stocks keep hitting new highs? Below, we show you how to stay in the game, without getting blindsided.
Surprisingly strong second-quarter earnings reports this week continue to push stocks into record territory. Nine of the 10 S&P 500 I:GSPCsectors rose on Thursday, with banks gaining the most.
A catalyst for Thursday's stock market surge was a better-than-expected earnings scorecard from JPMorgan Chase, which assuaged concerns that the operating results of U.S.-based banks would suffer from bad energy loans and low interest rates. Banks seem to be thriving, while at the same time anxieties over "Brexit" are easing.
As the stock market's exuberance grows, more and more investors want to join the party. Increasingly confident traders are yanking money out of safe-haven assets such as gold and U.S. Treasury bonds, pushing bond yields higher. However, you should be concerned that stocks are now overbought and poised for a correction.
One solution is to buy the stocks of "boring" cyclicals that rise with the broader markets but provide a cushion when inevitable corrections come along. Below, we examine two such stocks. We also steer you towards a little-known but brilliant investment method that steadily makes money in good times and bad.
Our two stocks are often-ignored industrial stalwarts: Illinois Tool Works (ITW) - Get Report and ABB (ABB) - Get Report . While sexy stocks such as Amazon, Alphabet and Apple steal the limelight, these two companies continue to make the essential products without which the modern industrial economy would grind to a halt.
Apple and Alphabet are holdings in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. See how Cramer rates the stocks here. Want to be alerted before Cramer buys or sells AAPL and GOOGL? Learn more now.
Both Illinois Tool Works and ABB are benefiting from economic recovery, but they're large and diversified enough to withstand the unexpected shocks (and there have been plenty so far this year) that would clobber many other cyclicals. Let's take a look.
1. Illinois Tool Works
This company is scheduled to report second-quarter results on July 20. The average analyst estimate is that adjusted earnings per share will come in at $1.40, compared with $1.30 in the same quarter a year earlier.
With a market cap of $40.16 billion, Illinois Tool Works produces engineered fasteners and components, equipment and consumable systems, and specialty products. Chicago-based Illinois Tool Works isn't a flashy technology stock; it's a classic recovery play without drama and volatility.
So far this year, the company has been reaping more orders from a rebounding automobile industry. Illinois Tool Works' strategy is to generate growth from targeted acquisitions in the most promising global regions, especially in car-crazy Asia.
The company is clearly benefiting from an improving global economy, with the stock up nearly 20% year to date. The trailing 12-month price-to-earnings ratio is 21, roughly in line with the industrials sector. The dividend yield is a healthy 2.0%. Illinois Tool Works is a smart "defensive growth" addition to your portfolio in a rising but dangerous market.
2. ABB
ABB is scheduled to report second-quarter results on July 21. The average analyst estimate is that adjusted EPS will come in at 27 cents, compared with 26 cents in the same quarter a year earlier.
ABB is an industrial machine and electrical equipment manufacturer for utilities and industrial customers around the globe. The company operates in five divisions that provide a diversified revenue stream: Power Products, Power Systems, Discrete Automation and Motion, Low Voltage Products, and Process Automation. As such, this Zurich, Switzerland-based giant (market cap: $44.78 billion) is a proxy for global capitalism.
ABB is a growth-and-income generator with downside protection. The stock is up 12% year to date, with plenty of room for further capital appreciation as central banks around the world keep interest rates low to stimulate sluggish economies. The trailing P/E is nearly 24, within the range of its peers. ABB's dividend yield is a robust 3.9%.
---
As we've just explained, ITW and ABB are shrewd buys ahead of their operating results next week. But what if I told you there's a way to make consistent profits in up and down markets, in good times and bad? I've found a genius trader who has developed a proprietary system that guarantees (that's right, guarantees) you $67,548 per year in profitable trades. It's a simple, time-proven system that's easy to follow. Want the full details? Click here now.
John Persinos is an editorial manager and investment analyst at Investing Daily. At the time of publication, Persinos held stock in Apple.