The case for buying 3M (MMM 0.46%) is based on the idea that the company's second half of 2024 will be better than its first. It's a scenario many industrial companies hope will come true this year. Still, there are better ways to invest than 3M stock in 2024, and I think industrial-supply company MSC Industrial Direct (MSM -0.01%), copper miner Freeport-McMoRan (FCX 2.23%), and specialty-alloy company Carpenter Technology Corporation (CRS 2.75%) are better options. Here's why.
MSC Industrial is a better way to play a cyclical recovery than 3M
Wall Street analysts aren't expecting much in top-line growth for 3M and MSC in 2024, about 1% and 1.4%, respectively. However, it's worth noting that those estimates (and 3M management guidance for organic sales estimated to be flat to up 2% on 2023) assume the healthcare segment is still part of the company. For reference, the healthcare segment is the only one of its four segments to report growth in 2023, and it's set to be spun off in the first half.
In addition, 3M's funding requirements for high-profile legal settlements are not precise yet, and there are question marks around its business model and operational execution, not to mention management's track record of meeting its guidance.
With all the issues around 3M, industrial bulls might prefer looking at a stock like metalworking and maintenance, repair, and operations (MRO) distributor MSC Industrial. As previously discussed, MSC starts 2024 with weak end markets, but those are nothing that won't be rectified by a lower interest rate environment, possibly beginning in the second half. Relatively high-interest rates are pressuring cyclical sectors such as manufacturing, and suppliers like MSC feel that.
Outside of the cyclical factors, MSC is making good progress on strategic initiatives like growing its installed base of vending machines (up 10% year over year). Sales through vending machines now comprise 17% of total sales. In-Plant sales (program count up 35% year over year and sales up 10%).
When the manufacturing sector returns to growth, MSC will be ideally placed to benefit. If a renaissance in U.S. manufacturing comes to fruition, led by reshoring as companies seek to simplify overtly complex supply chains, then MSC is one of the best ways to invest in it.
Freeport-McMoRan for its exposure to the electrification-of-everything trend
The price of copper will inevitably oscillate with demand trends and near-term sentiment over global growth prospects. After all, the industrial metal is the most sensitive commodity to economic growth. There's a case for buying the copper miner's stock as a play on a pick-up in growth later in the year.
Image source: Getty Images.
That said, there are better arguments about why Freeport is attractive. Copper is an essential metal in the electrification-of-everything trend, encompassing the growth of electric vehicles, renewable energy, data centers, industrial automation, intelligent buildings/infrastructure, and wireless technology. Not only do all of these technologies need more copper, but they imply significantly more investment in transmission and distribution networks, which means more copper.
Freeport stands well placed, with a significant "brownfield growth pipeline" of projects it can invest in to increase supply, alongside a cost-effective leaching initiative to extract more copper from its mine waste material. It all adds up to make Freeport the best mining stock to buy for 2024.
Carpenter Technology, an under-the-radar aerospace play
The specialty-alloy company is attractive for three main reasons. First, and keeping with the article's theme, Carpenter has cyclical exposure to the economy through its industrial and consumer, transportation, and energy sales (together making up 31% of its 2023 sales).
Second, its key end markets -- aerospace (50%) and medical (18%) -- are highly attractive. The commercial aerospace market continues to recover strongly, with aerospace giants like General Electric and RTX forecasting another excellent year of growth in the commercial aerospace original-equipment market. Carpenter's medical sales also look set for long-term growth as its specialty alloys go into body implants, the demand for which will only increase due to an aging population and new medical procedures.
Image source: Getty Images.
Third, the company's profit margins and cash-flow generation tend to be leveraged to revenue growth, and both are set to expand significantly in the coming years.
Carpenter trades on just 13.3 times estimated earnings for its financial 2025 (which finishes at the end of June 2025). That's a good valuation for an aerospace-focused stock in the current environment.
