For years, technology has dominated the stock market, and with good reason. The profound change since the turn of the century has been breathtaking, and many normal, everyday things now were not even considered them. Smartphones, cloud computing, streaming and so much more that are ubiquitous now were pretty much on the drawing board in 2000.
However, after a year that most of us will never forget, there is a rumble in the markets, and it’s called rotation. One area that many see as a destination for institutional and retail money is the industrial sector. Regardless of who wins the White House next week, infrastructure is on the docket, and the plan to fix the country’s aging roads, bridges, airports, power grids and more will be massive.
In a series of new reports, Goldman Sachs remains very bullish on four industrial leaders that already have posted third-quarter results. While all four stocks are rated Buy and are outstanding ideas for growth investors, it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
Armstrong World Industries
Investors may be interested in this company as a strong industrial idea for 2021. Armstrong World Industries Inc. (NYSE: AWI) designs, manufactures and sells ceiling systems primarily for use in the construction and renovation of residential and commercial buildings in the United States, Canada and Latin America.
Its products include suspended mineral fiber, soft fiber, fiberglass wool, and metal ceiling systems, as well as wood, wood fiber, glass-reinforced-gypsum and felt ceiling and wall systems; ceiling perimeters and trims, as well as grid products that support drywall ceiling systems; ceilings and walls for use in commercial settings; and acoustical and architectural cast ceilings, walls, facades, columns and moldings and structural solutions.
After the company beat the consensus forecast for the quarter, the analysts said this:
Third quarter beat driven by higher revenues, margins: Armstrong reported third quarter EPS of $1.07, above our estimate and FactSet consensus of $0.94. The outperformance was primarily driven by better-than-expected revenues (down 11% versus our 17% forecast), a $0.07 contribution to results, demonstrating a modest sequential recovery across its end markets in the quarter. Assuming no COVID-related construction site shutdowns, the company expects further sequential market improvement in the fourth quarter.
Shareholders receive a 1.35% dividend. Goldman Sachs has a $78 price target for the shares, just shy of the $78.88 Wall Street consensus target. Armstrong World Industries stock closed Wednesday at $59.20, down almost 6% on the day.
This large cap leader was hit by trade worries in 2019, but has rallied nicely this year off the March lows. Caterpillar Inc. (NYSE: CAT) is the world’s leading manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives. It is also one of the most valuable brands in the world.
The company principally operates through three primary segments (Construction Industries, Resource Industries and Energy & Transportation). It also provides financing and related services through its Financial Products segment.
The company reported mixed results, but the analysts are very positive for 2021:
Following Caterpillar’s mixed third quarter results, we raise our 2020-22 EPS by 4% on average as stronger Construction Industries sales forecasts are partly offset by lower Energy & Transportation margin forecasts. On the positive side, the quarter revealed a backlog inflection in Construction Industries, inventory destock approaching historical trough, a sequential improvement in pricing driving a 1% margin beat versus our estimate. Beyond the quarter, momentum is building for the company’s autonomous mining trucks (comments imply 60 units delivered in 4Q), and we note that Caterpillar has commercial hydrogen-powered turbines, positioning the company to participate in a hydrogen infrastructure investment cycle if adoption of hydrogen emerges.
Shareholders receive a 2.61% dividend. The Goldman Sachs price target is $180, and the consensus target is $150.18. Caterpillar stock closed Wednesday down just over 4% to $151.16.