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The S&P 500's industrial sector (SP500-20) gained about 11.63% in the first quarter of this year, compared to a 13% expansion in the December quarter.
Its accompanying ETF, Industrial Select Sector SPDR Fund (NYSEARCA:XLI) also registered an 11% gain between January and March, compared to the S&P 500's 10.79% rally.
With earnings for the first quarter right around the corner, Seeking Alpha's Quant ratings gave the Industrial sector - which makes about 9% weightage in the broader index - an overall health score of 3.31 out of 5.
Quant ratings recommended about 12 stocks as a Buy or higher, while another 59 stocks were marked as Neutral. C.H. Robinson Worldwide (CHRW) was the only stock rated as a Sell. Ratings under the Quant system are based on quantitative indicators like valuation, earnings growth, and past stock performance.
Furthermore, the sector scored 4.43 out of 5 on dividend security, with 43 companies rated as “Ultra Safe” and another 13 marked “Very Safe”.
Leading the pack, ride-hailing and delivery provider Uber (UBER), was the top-rated company in the sector, scoring 4.90 out of 5, on the back of a 25% gain in Q1. Next in line was electrical equipment company Emerson Electric (EMR) and construction equipment maker Caterpillar (CAT), which were rated Strong Buy by the Quant system.
Uber, which is classified as an industrial company despite its origins as an app developer, was graded an A on profitability and an A+ on its growth prospects and momentum. The stock, however, got a D+ for its valuation compared to a D- three months ago.
"While I would certainly like to buy UBER on a pullback after such an astronomical move-up in its stock, the business is firing on all cylinders while turning into a reliable cash printing machine," said SA Analyst Ahan Vashi.
On the other hand, air freight and logistics company C.H. Robinson Worldwide (CHRW) was Quant's least favored pick, followed by human resources firm Robert Half (RHI) and consulting services company Verisk Analytics (VRSK).
"I maintain my sell rating for CHRW due to persistent challenges in the near-term outlook. Importantly, the economic conditions remain difficult, with the Federal deferring rate cuts," said SA Analyst Normad Capital.
SA Quant gave CHRW a 2.13 out of 5, accounting for growth and momentum pressures.
Behemoths like Boeing (BA), Lockheed Martin (LMT), United Parcel Service (UPS), 3M (MMM), and American Airlines Group (AAL) were rated Hold, while Honeywell (HON) and Automatic Data Processing (ADP) were rated Buy.
Looking ahead, Goldman Sachs expects that industrial stocks will record EPS growth of about 1% in the first quarter, compared to the 3% growth expected by the broader S&P 500 index.
Last week, Citi categorized Industrials as an overweight sector with “an impressive fundamental resilience in the face of weaker macro trends” during 2023.
