The Easy Way to Make Money in Rebounding Industrial Stocks

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect the industrials industry to prosper as the global economic recovery gains steam, the PowerShares Dynamic Industrials ETF (NYSE: PRN  ) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in a lot of them simultaneously.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The PowerShares ETF's expense ratio -- its annual fee -- is 0.60%. That's a bit on the steep side for an ETF, but still far lower than the typical stock mutual fund. The fund is very small, too, so if you're thinking of buying, beware of occasionally large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.

This ETF has performed rather well, beating the world market over the past three and five years. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.

What's in it?
Plenty of industrial-related companies had strong performances over the past year. United Parcel Service (NYSE: UPS  ) , for example, gained 16%, with its vast network benefiting from international growth, the growth of e-commerce retailing (as it delivers so many items we order online), and acquisitions such as its $7 billion buy of TNT, which boasts strength in Europe and China, among other places. Still, UPS isn't quite firing on all cylinders right now due to Europe's woes and slowing growth in China.

Textron (NYSE: TXT  ) , meanwhile, gained 15%, partly on a big vote of confidence from Warren Buffett, when Berkshire Hathaway's NetJets subsidiary placed a huge order for 150 business jets from Textron's Cessna unit. Domestically, cuts in defense spending threaten the company somewhat, but plenty of growth is expected abroad, where countries such as China are buying business jets and military choppers and planes.

Other companies didn't do as well last year, but could see their fortunes change in the coming years. Delta Air Lines (NYSE: DAL  ) gained 7%, but don't let that get you too excited about the airline industry, which has long been a money loser overall, with a few exceptions. The company has benefited from fuel prices finally falling a bit, and has also addressed the long-vexing problem of fuel volatility in an innovative way: by buying a refinery! In addition, the airline has been aggressively charging fees for baggage, reservation changes, and more -- though this can backfire by ticking off customers.

Cummins International (NYSE: CMI  ) gained 3%, posting strong results despite warning investors about weakness in global economies. The company's balance sheet is robust, with little debt, and it has been spending heavily on research and development and in adapting to meet stricter emission standards. On the negative side, the company has single vendors for many of its supplies, and slowing growth in China and India could hurt it.

The big picture
Demand for industrial goods and services isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.

UPS isn't the only American company looking to dominate. Read our new report and discover the three American companies set to dominate the world. The report's free today, but it won't be for long -- so click quickly.

Longtime Fool contributor Selena Maranjian, whom you can follow on Twitter, owns shares of Berkshire Hathaway, but she holds no other position in any company mentioned. Click here to see her holdings and a short bio. The Motley Fool owns shares of Textron and Berkshire Hathaway. Motley Fool newsletter services have recommended buying shares of Berkshire Hathaway and Cummins. The Motley Fool has a disclosure policy.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 1917715, ~/Articles/ArticleHandler.aspx, 4/19/2014 4:06:04 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement