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3 Top Industrial Stocks to Watch in November

By Lee Samaha - Nov 14, 2019 at 9:07AM

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These companies will have crucial things to say about the outlook for key industries to invest in during 2020.

It's no secret that global growth has slowed in 2019, and the industrial economy in particular has taken a downturn. The near-term outlook is negative, but long-term investors don't buy stocks with a quarter-by-quarter view. The big question is when the cycle will turn positive again. With this in mind, three companies giving earnings reports in November -- Rockwell Automation ( ROK 1.86% ), Analog Devices ( ADI 4.18% ), and Deere ( DE 1.34% ) -- will help to provide answers for investors in stocks ranging across a wide swath of industries.

A golden bull and bear face off atop a stock market report.

Image source: Getty Images.

Rockwell Automation for automotives, robotics, and industrial automation

The company is one of the leading factory automation companies in the world, and as such, its revenue is other companies' capital spending, making it a key bellwether of overall industrial conditions. The company gives its fourth-quarter results in the middle of November, and aside from the general market commentary, there are three things to keep an eye out for.

First, management believes that organic sales will decline by 3% to 3.5% in the fourth quarter, but aside from the headline number, investors should focus on the architecture and software systems segment results and revenue growth outlook -- it tends to be more exposed to short-cycle spending patterns and so will lead the direction of Rockwell's overall sales.

Rockwell Automation year-over-year growth.

Data source: Company presentations.

The second thing to look for is its guidance on its automotive end market. Rockwell CEO Blake Moret started fiscal 2019 expecting flat sales growth from the automotive end market, only to reduce expectations to a mid-single-digit decline on the earnings call in January and then cut it to a 10% decline in April. Will Rockwell meet this guidance? And what will Moret say about 2020?

Third, semiconductor spending has been weak in 2019, but companies that supply the market such as 3M, Siemens, and Lam Research have all been pointing to improving conditions lately, and it wouldn't be a surprise if Rockwell indicated potential improvement too -- something to look out for.

Analog Devices for semiconductors and consumer electronics

Speaking of the semiconductor sector, Analog devices will give earnings toward the end of the month, and investors will be looking to see if the sector has really passed a trough, as Siemens CEO Joe Kaeser believes it has.

The company's year-over-year sales growth has been in negative territory for the last four quarters, and it's hard to expect much improvement from its automotive end markets, while communications growth has been driven by 5G spending. However, considering the brighter outlook given by some of its peers, it's possible that Analog could report some relatively positive numbers on its consumer end markets and some stabilization in its industrial end market.

Analysts have the company eking out 1% sales growth in 2020, and it will be interesting to see whether the company guidance matches or even meets that estimate as it reports its fourth-quarter 2019 results.

Meanwhile, for broader market watchers, it's worth noting that semiconductor capital spending is often seen as being a very early-cycle activity, and if it comes back, investors can feel more positive about the general economic outlook in 2020.

Analog Devices segment growth.

Data source: Company presentations.

Deere for agriculture and construction

Agricultural and construction machinery company Deere will also give its fourth-quarter results at the end of the month. The key things to look out for are its outlook for U.S. and Canadian agricultural machinery equipment sales in 2020 and its overall construction equipment sales forecast.

It's been a complicated year for the company, with a combination of the fallout of the trade war (agriculture has been a key battleground, leading to a slump in U.S. soybean exports to China) and African swine fever causing dramatic declines in China's pig herd and consequently its demand for soybean meal.

As such, management now expects its full-year U.S. and Canadian agricultural equipment sales to be flat compared to a forecast for flat to up 5% given at the start of the fiscal year. The key question is what Deere will guide toward for 2020. The answer will tell investors a lot about how the trade war is impacting the U.S. agricultural sector.

Deere Full-Year Guidance

November

February

May

August

Agriculture and turf segment net sales growth

3%

4%

2%

2%

Construction and forestry net sales growth

15%

13%

11%

10%

Total company net sales growth

7%

7%

5%

4%

Net income

$3.6 billion

$3.6 billion

$3.3 billion

$3.2 billion

Data source: Company presentations.

Deere also has a construction equipment business, and as you can see in the table above, the construction segment has also lowered full-year guidance through the year. That said, there's been some evidence of an improvement in the construction end market recently -- for example, industrial supply company Fastenal's construction sales data and Caterpillar's rolling three-month construction machinery retail sales turned positive in October after a few months in negative territory.

Looking ahead

Given the recent strength in the S&P 500 and the 24% gain so far this year, the market appears to believe the industrial economy will avoid a recession. However, investors will feel a lot more confident if companies like Rockwell, Analog Devices, and Deere give decent outlooks, and what their managements say will guide investors as to which sectors are best placed to invest in during 2020.

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.

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Stocks Mentioned

Deere & Company Stock Quote
Deere & Company
DE
$350.17 (1.34%) $4.63
Analog Devices, Inc. Stock Quote
Analog Devices, Inc.
ADI
$187.78 (4.18%) $7.54
Rockwell Automation Inc. Stock Quote
Rockwell Automation Inc.
ROK
$342.46 (1.86%) $6.26
Caterpillar Inc. Stock Quote
Caterpillar Inc.
CAT
$196.41 (1.58%) $3.06
Fastenal Company Stock Quote
Fastenal Company
FAST
$60.48 (2.21%) $1.31
3M Company Stock Quote
3M Company
MMM
$174.22 (2.46%) $4.18
Siemens Aktiengesellschaft Stock Quote
Siemens Aktiengesellschaft
SIEGY
$83.69 (4.56%) $3.65
Lam Research Corporation Stock Quote
Lam Research Corporation
LRCX
$703.95 (3.55%) $24.10

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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