Riding a bull market while positioning yourself against a recession is a delicate balancing act. One way to do this is by purchasing stock in industrial companies, which are instrumental in a booming economy, that are fairly priced. Industrial giants Honeywell International (NASDAQ:HON), Lockheed Martin (NYSE:LMT), and Caterpillar (NYSE:CAT) currently have P/E ratios of less than 20 even after their recent rises. This basket of three industrials provides just the ticket for long-term performance despite market cycles.

Sparks fly from an industrial drill.

Source: Getty Images.


Honeywell International is one of the largest industrial companies in the S&P 500, second only to Boeing. Yet unlike Boeing's PE of 43, Honeywell's stock has a mere 17.5 P/E ratio, significantly below the S&P 500 average of 21.

Honeywell does just about everything but is mostly known for its aerospace segment. The company has four other business segments aside from aerospace: home and building technologies, safety and productivity solutions, performance materials and technologies, and Honeywell connected enterprise. Honeywell also licenses its brand name to retail products made by other manufactures like thermostats, sensors, alarm systems, heaters, fans, home generators, paper shredders, air conditioners, and more. It's likely you have Honeywell products in your home and have been exposed to them on countless occasions. 

Honeywell is a technological leader that pioneers everything from strengthening cybersecurity to onboard vibration monitoring systems. Simply put, it's a titan of industry with a diversified stream of revenue.

Financially speaking, it's even better. Honeywell currently has a dividend yield of 2% and an attractive PE of 17.5. Even better, Honeywell has practically no debt, a rarity in the industrial space. Honeywell's $17 billion in debt is largely offset by its $10 billion in cash. The company's nearly $40 billion in annual revenue and 20% operating profit margin results in $4.77 billion of levered free cash flow, which includes debt. Honeywell is just about as solid as they come on paper.

Lockheed Martin

Lockheed Martin seems like Honeywell reincarnated. The fifth-largest industrial company in the S&P 500, Lockheed Martin is an aerospace and defense contractor known for its combat and fighter aircraft like the F-35. Lockheed shares have appreciated around 50% in 2019, but the stock still has a P/E ratio of just 19. Lockheed shares were depressed through much of the second half of 2018, as uncertainties about Trump's presidency, military contracts, competition, and more held the company down. Finally, the stock has breached a new all-time high.

Like Honeywell, which has also outperformed the market and is within striking distance of its all-time high, Lockheed is still cheaper than the market -- and cheaper than most industrials, for that matter. It checks out on paper too. Despite its size, Lockheed was able to grow Q2 2019 earnings per share a whopping 23% quarter over quarter. Lockheed's 14% profit margin, $3.8 billion in levered free cash flow, and 2.25% dividend make for a solid investment despite the 2019 rise.


Ah, Caterpillar. Unlike Honeywell and Lockheed, Caterpillar has found itself languishing for two years as it struggles to reach a new high. The industrial bellwether has continued to grow earnings despite its lackluster stock performance. As a result, its P/E ratio has compressed to less than 12.

Caterpillar has significantly more international exposure than Honeywell or Lockheed. Caterpillar operates through four primary industries: construction, energy and transportation, resources, and finance. Its global business model and diversified portfolio shine when the global economy is doing well. However, economic weakness from trade tensions and weak Latin American and African markets have hurt multiple sectors of Cat's business.

Despite these headwinds, Caterpillar was still able to increase its sales and revenues to $14.4 billion, up from $14.0 billion in Q2 2018. Its profit per share increased slightly from $2.82 to $2.83 between Q2 2018 and Q2 2019.

Caterpillar is a component of the Dow Jones Industrial Average and is widely regarded as a leading indicator for the growth and performance of the global economy. Recent trade tensions, poor consumer confidence indicators, and a weakening Purchasing Manager's Index (PMI) that just fell below 50 for the first time in years spell trouble for Caterpillar in the short term. (Note that a PMI of less than 50 indicates an economic contraction.)

Regardless, Cat's long-term performance speaks for itself. Cat currently yields more than 3% on its dividend. The company's $2.12 billion levered free cash flow and 15% operating margin bolster it in times of global weakness. Although susceptible to a slowing global economy, Caterpillar is undeniably an integral part of United States industry. Now would be a good time to consider the stock.


Honeywell, Lockheed Martin, and Caterpillar all have what it takes for solid, long-term investment. All three stocks can ride a bull market but also weather the storm during a downturn. A strong position in just one of these three companies would be an industrial investor's dream. Take all three, and you have a basket of stocks that will carry you through the long haul.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.