According to Viking Global Investors' latest 13F filing at the SEC, the hedge fund has been buying some very interesting industrial stocks this year. Aerospace and defense company Raytheon Technologies (NYSE:RTX), elevator company Otis (NYSE:OTIS), and motion control company Parker-Hannifin (NYSE:PH) were all added by Ole Andreas Halvorsen's investment vehicle. Let's take a look at all three and see if they are still a good value or not.

Raytheon Technologies

The company was created this year out of a merger between the aerospace businesses of the former United Technologies (Pratt & Whitney and Collins Aerospace) and the defense-focused Raytheon Company. The idea behind the deal was to create an aerospace and defense giant with the ability to unlock the potential in each business' technology.

Unfortunately, the company walked straight into the COVID-19 pandemic and the devastation wrought on the commercial aerospace industry. As such, the company now finds itself relying on the cash flows from the defense businesses in order to support the aerospace businesses through a long period of recovery.

Clearly, you are not going to buy this stock unless you believe that commercial aerospace will recover. However, that seems like a good bet. Despite a patchy record of profit generation, the aerospace industry has never had a problem attracting capital investment, even as airlines come and go. As such, the best way to invest in the aerospace industry is by buying aerospace suppliers, not the airlines themselves -- and Raytheon Technologies is one of the best ways to do that.

Missiles being fired.

Image source: Getty Images.

What's more, the stock remains attractive from a valuation standpoint. With $4 billion plus in ongoing free cash flow (FCF) from the defense businesses and an ongoing recovery in FCF from commercial aerospace, Wall Street analysts have Raytheon Technologies generating $6 billion in FCF in 2022, representing around 5.5% of its current market cap.

With the International Air Transport Association expecting a return to 2019 levels of passenger traffic by 2024 at the earliest, and a lag to a recovery in the aftermarket, Raytheon will have another couple years of strong growth ahead of it at the end of 2022. After which, the commercial aerospace businesses should revert to a more normal growth rate. If so, Raytheon Technologies is attractively priced at the current level.

Otis Worldwide

The former United Technologies company must be appreciated by Halvorsen because Viking bought another company from the breakup of the industrial giant. Otis is the world's leading elevator company and is seen as a play on a combination of long-term demand growth from China.

In addition, Otis has the ability to grow its highly profitable services revenue by implementing Internet of Things (IoT) solutions. In a nutshell, the use of internet-enabled devices allows elevators to be better serviced through the monitoring and diagnosis of performance. Furthermore, Otis continues to roll out mobile devices and applications to its service personnel in order to improve service levels. As such, Otis is positioning itself to fully take advantage of its leading position in elevator and escalator equipment. 

People on a crowded escalator.

Image source: Getty Images.

An illustration of the potential for the services business can be seen in the recent third-quarter earnings report. While overall nine-months adjusted operating profit was basically flat on last year at $1.41 billion, the adjusted profit from services was actually up 3.1% to $1.22 billion, but equipment adjusted operating profit declined 19% to $258 million.

The combination of a recovery in the global economy and a strongly recovering economy in China is expected to lead to mid-single-digit recovery in sales for the next few years. With services revenue growing, Otis' margin should improve and the company can look forward to a long-term stream of earnings and FCF.

Parker-Hannifin

The motion and control technologies company entered 2020 with sales still in decline, but the hope was a bottoming would occur in the first three months of 2020 leading to an upturn in the trend and ultimately sales growth in 2021. Unfortunately, the coronavirus pandemic had other ideas, and Parker-Hannifin sales declined 3.1% in its first-quarter 2021 earnings report released in November.

The company reports out of two segments. The diversified industrial segment sells into a wide range of industrial end markets, while the aerospace systems segment sells into leading aircraft manufacturers and engine makers. The industrial segment was responsible for 78% of segment profit in fiscal 2020, with the rest coming from aerospace.

As you can see below, order trends have turned down in aerospace systems this year -- that's no surprise, given the downturn in the commercial aerospace industry. But the industrial segment appears to be in recovery mode.

Parker-Hannifin growth.

Data source: Parker-Hannifin presentations. YOY = year over year.

As such, the case for Parker-Hannifin is built on the idea that its revenue growth will get relatively better through 2021. As for 2022, CEO Tom Williams recently declared himself "very optimistic." He said:

There's fiscal stimulus that's in place and maybe more might come. The vaccine will be there. Air travel is going to slowly resume. Our order entry by then will have turned positive.

Stocks to buy?

All three are worthy stocks, and it's not hard to see why Viking Global has been buying them in 2020. Raytheon is attractive if you believe in a multi-year recovery in commercial aerospace, as the company stands very well-positioned to benefit. Parker-Hannifin has plenty of recovery potential given a return to normalcy in the industrial economy. And finally, Otis is worth buying if you are happy to take on exposure to China.

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.