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The S&P 500’s Industrial sector (SP500-20) fell 5.5% in the third quarter, in tandem with the larger market sentiment, while its accompanying ETF (NYSEARCA:XLI) moved 5.6% lower between July – September, compared to S&P 500’s 3.76% fall.
In a period, where investors saw mixed economic data points, a noticeably hawkish Fed, inflationary woes, a slowing Chinese economy, higher oil prices, and a strike by auto unions, here’s how Seeking Alpha’s Quant rating analyzed industrial equities.
SA’s Quant gave the Industrial sector, which makes up about 8% of the S&P 500, an overall health score of 3.39 out of 5. Ratings under the Quant system are based on quantitative indicators like valuation, earnings growth, and past stock performance.
With third-quarter earnings around the corner, Quant marked 13 firms as a “Buy” or higher, while the rest 58 stocks were considered a “Neutral”. Furthermore, the sector scored 4.46 in terms of dividend safety, with about 45 “Ultra-Safe” stocks.
Leading the pack, construction equipment maker Caterpillar (CAT) and conglomerate General Electric (GE) got Quant scores of 4.95 and 4.93, along with respective ratings of “Strong Buy”, with both earning an A+ on profitability.
Next in line was commercial truckmaker Paccar (PCAR), carrying a score of 4.86, and earning an A on profitably but a C+ on valuation. Contributor Luca Socci said that Paccar’s consistent management and strong service business contribute to its profitability and high margins.
Meanwhile, behemoths like Boeing (BA), Lockheed Martin (LMT), Honeywell (HON), United Parcel Service (UPS), and Automatic Data Processing (ADP) had scores ranging between 3.07 – 3.89, and all were rated “Hold” by the Quant system except (HON) which was marked “Buy”.
Alaska Air Group (ALK) had the lowest Quant rating at 2.62 in the sector, along with a “Hold” rating, earning a C- on profitability but an A- on growth and valuation.
Going ahead, Goldman Sachs said EPS for the industrial sector is expected to rise 1%, while S&P Global forecasted EPS growth of 7.83% for the third quarter.
