Factories Beat Forecasts: Why Parker-Hannifin Is a BUY
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Key Takeaways
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| By Gavin Magor Reviewed by: Leo Tavolaro |
If most of your portfolio rides on the big tech names, the past month was a rough one.
Meanwhile, America's factories just posted one of their best months in nearly four years.
Investors were also moving money out of tech and into other parts of the market on Monday.
That shift may have further to run.
Your portfolio doesn't have to pick a side.
It just needs a second engine.
Your Portfolio Has a Blind Spot
The technology sector fell about 12% in the month through Monday.
Industrials slipped too, but only about 3.5%.
Tech is still ahead for the year.
The technology sector is up about 18% year to date.
Industrials are up about 9.5%.
If your gains this year came mostly from a handful of tech giants, one bad month can undo a lot of them.
The factory floor gives you a way to spread that risk without giving up on growth.
What the Factory Floor Is Saying
The Institute for Supply Management (ISM) manufacturing index rose to 55.5 in October.
Any reading above 50 means more factories are growing than shrinking.
Economists had expected 54.6.
It marked the sector's second-fastest pace of expansion in nearly four years.
Production led the way, with its index climbing to 59.
New orders, a guide to future work, edged up to 55.5.
Employment eased to 52.4, but stayed in growth territory.
Where the Demand Comes From
A Trading Economics summary of the survey points to strong demand tied to AI, data centers, semiconductors and infrastructure.
That's the key point for your money.
The AI boom isn't only a tech story.
Someone has to build the power systems, cooling and wiring behind every data center.
Many of those companies sit in the industrial sector, not the tech sector.
The Catch in the Price Index
Costs remain the sore spot.
The ISM prices index eased to 75.2, but it remained elevated.
That means far more manufacturers are paying higher prices than lower ones.
In September, the Iran war came up in 30% of the negative comments ISM collected.
For investors, the lesson is simple: favor companies that can pass higher costs on to customers.
That's pricing power, and it separates the winners from the also-rans in a market like this one.
Follow the Money on Monday
Monday's market showed the shift in real time.
The Nasdaq Composite fell 1.07%.
The Dow Jones Industrial Average rose 0.41%.
Consumer discretionary stocks led the market, up 2.24%.
Industrials gained 1.35%.
Technology dropped 2.49%.
Not everyone is giving up on tech.
Deutsche Bank raised its view of tech stocks back to overweight, CNBC reported.
I'd take that as a reminder that this isn't an either-or choice.
For you, Monday's message is about balance, not abandoning what has worked.
Picking Winners on the Factory Floor
The Industrial Select Sector SPDR ETF (XLI) carries a Weiss rating of C+, a HOLD.
The broader Vanguard Industrials ETF (VIS) is rated C, also a HOLD.
Buying the whole sector means owning the laggards along with the leaders.
Honeywell (HON), for example, carries a Weiss rating of D+, a SELL.
Three Names That Earn Their Grades
GE Aerospace (GE) holds a Weiss rating of B, a BUY.
It jumped 4.6% on Monday.
Illinois Tool Works (ITW) is also rated B, a BUY.
Caterpillar (CAT) earns a B-, a BUY.
Our ratings and sub-grades weigh reward, risk, solvency and growth, which helps sort the leaders from the laggards.
In the Weiss Ultimate Portfolio, which I edit, we hold an industrial supplier that sells to these very factories.
October's survey is good news for that business too.
Keep Your Tech
If you own tech, you don't need to sell it.
The Technology Select Sector SPDR ETF (XLK) still holds a Weiss rating of B-, a BUY.
The goal is to add a second engine, not to swap one for the other.
Let the Ratings Do the Sorting
Every fund rating in this report came straight from the live Weiss Ratings pages.
Weiss Ratings Plus puts that same work in front of you, with real-time ratings, instant alerts on upgrades and downgrades, and exclusive analysis.
It's how you'll know the day a long Treasury fund earns a better grade.
And it's how you'll see our next move on U.S. debt as soon as we make it.
Click here to see what Weiss Ratings Plus can do for you.
My Pick for a Humming Factory Floor
Remember that second engine?
Parker-Hannifin (PH) is my pick to power it.
It holds a Weiss rating of B, a BUY.
The shares rose 3.2% on Monday.
They closed at $928.29.
Parker makes motion and control systems used in factories, aircraft and heavy equipment.
When factories ramp up production, they need more of what Parker sells.
Specialized parts like these are hard to swap out, which tends to give a supplier room to raise prices.
That matters when the ISM prices index is still elevated.
Parker reports quarterly results on Thursday, Nov. 5.
Analysts expect earnings of $8.23 a share.
That compares with $7.22 a year earlier.
Buying just before a report means the shares could swing on the numbers, in either direction.
If you'd rather see the results first, waiting until Thursday is a reasonable choice.
I'm comfortable making the call now, because October's factory data already points the right way.
For my part, I expect a solid report.
How much you allocate, if anything, is up to you, based on your risk tolerance and time horizon.
What I'm Watching
- Parker-Hannifin's results on Thursday, Nov. 5, topping the $8.23 a share analysts expect.
- The October jobs report on Friday, Nov. 6, confirming factory hiring held up.
- The ISM prices index easing further as oil prices cool.
- The ISM manufacturing index holding above 55 in the November survey.
- Tech stocks steadying, so the rally broadens instead of simply changing hands.
Bottom Line
If most of your portfolio rides on big tech, the past month showed you the risk of running on one engine.
The factory floor just handed you a second one.
Consider buying Parker-Hannifin at market, rated B, a BUY, now or once Thursday's results are in.
Keep your tech, and let industry do some of the lifting.
Cheers!
Gavin
