The 12 Best-Performing Industrial Stocks of the Decade

It's almost the end of the decade, which makes it an apt time to reflect on which investment themes and stocks performed best over the last 10 years, and to ponder which ones might do best over the next 10.

The 2010s didn't just mark a calendar decade. It's been almost precisely a decade since the U.S. climbed out of the Great Recession -- an event that looms large in this article. As you are about to see, most of the companies to be discussed below were blessed with significantly favorable changes in their end markets over this period. Let's take a look at them, and see if they can give some clues as to what stocks to buy for the next decade. 

Image source: Getty Images.

The 2010s best-performing industrial stocks 

Data source: Ycharts. 

Aerospace flying high

Aerospace giant Boeing and component manufacturers TransDigm and HEICO are essentially geared plays on their industry. The astonishing share price performances of the latter two have largely been a consequence of a combination of good execution and their mutual strategy of being highly acquisitive during the long bull market for aerospace.

Meanwhile, Boeing has made acquisitions, invested in developing Boeing Global Services, and expanded its manufacturing activities.

All three have benefited from a never-before-seen step change in the profitability of the worldwide airline industry and ongoing passenger growth -- a pair of trends driven by deregulation, the scaling back of government subsidies, and the rise of budget airlines. It appears that the Great Recession led to substantive changes in how the industry works.

Data source: International Air Transport Association

Composite material technology company Hexcel has also been a major beneficiary of increased aircraft production, as well as the fact that manufacturers are using more carbon fiber composites (lighter and stronger than aluminum) in their newer aircraft, particularly in wide-body planes.

Spending in the defense sector has also been strong in the last decade, and Boeing, Northrop Grumman, and Teledyne Technologies have benefited. That said, that industry still relies on one major customer, the U.S. government, and investing in the defense sector is always somewhat subject to a view on political matters. 

Comebacks for the housing market and the U.S. consumer

The recovery in the housing market had a huge impact on a number of the companies that made this list. As the chart below illustrates, the home-building industry was in a dark place after the recession, but it has been in fairly steady growth mode for a decade.

US Housing Starts data by YCharts

That's been great news for outdoor decking manufacturer Trex, heating ventilation and air conditioning company (HVAC) Lennox International -- 64% of its earnings come from the residential heating and cooling market --  and Sherwin-Williams, the global leader in the architectural paint industry. Indeed, the housing industry's rise goes a long way toward explaining why Sherwin-Williams has outperformed its more industrially focused peers.

SHW data by YCharts

Another company that has benefited from stronger conditions in housing is Patrick Industries. The bulk of its earnings come from making components for recreational vehicles -- furniture, lights and exterior parts. That market does well when recreational spending rises, and when U.S. consumers feel like they have more wealth -- as they do when the prices of their homes are rising -- they tend to spend more. Management believes that spending among the key 35- to 44-year-old demographic is poised for long-term growth after having bottomed out in 2014.

Two outliers

Premium commercial HVAC company AAON is a company seen by many pundits as a potential takeover target in an industry ripe for consolidation. And infrastructure maintenance machinery manufacturer Alamo Group has, along with its peer Federal Signal Corporation (FSS 1.61%) seen strong growth in revenue as a result of the ever-more-urgent need to maintain and upgrade U.S. infrastructure. 

ALG Revenue (TTM) data by YCharts

Looking back and looking ahead

Recognizing the directions of long-term trends like those discussed above can translate into stellar returns for investors. So what can we expect looking ahead?

Provided that the global economy remains in growth mode, it's likely that airline passenger growth will too, and the moderate pace of the recovery in U.S. housing suggests an extended period of growth is possible. Meanwhile, the need for infrastructure spending in the U.S. won't go away anytime soon. In other words, some of the trends that drove super stock performance in the last decade should also apply in the next one.

Among the stocks considered here, Boeing looks like it has recovery potential assuming it can resolve its 737 MAX troubles soon; Hexcel could benefit from a pickup in wide-body plane demand; infrastructure spending should give a boost to Alamo Group; and the ongoing recovery in U.S. housing should help Sherwin-Williams, Patrick Industries and Trex.