Our favorite industrial stock picks for 2022 and beyond

The industrial sector can be very cyclical, so when the global economy slows down it usually has an impact on industrial profits. This is a concern going into 2022, as central banks appear poised to raise interest rates to their lowest to fight rising inflation, which could dampen global growth.

However, even with this upcoming macroeconomic uncertainty, there are still industrial companies established to perform well and continue to win in 2022 and beyond. Three of our contributors’ favorite industrial stocks for the years to come are Lockheed Martin (NYSE: LMT), Waste Management (NYSE: WM), and Nucor (NYSE: NUE). Here’s why this trio stands out.

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A difficult year ahead, but then growth

Reuben Gregg Brewer (Lockheed Martin): When defense industry giant Lockheed Martin discussed its third quarter results, it warned investors that 2022 would be less than inspiring. Management expects sales to decline slightly next year, then pick up in 2023 and increase steadily through 2026. This short-term negativity helps explain why the price / sales, price / earnings, price / Lockheed Martin book value. value and price-to-cash flow ratios are all below their current 5-year averages.

Everything suggests that this stock is for sale. And at the current stock price, its dividend yield is a generous 3.2%, more than double the 1.3% yield you would get from a S&P 500 Index fund.

What’s most interesting here, however, is that Lockheed Martin has its fingers in some of the biggest and most important military contracts, such as the F-35 Joint Strike Fighter. These government contracts will provide reliable income streams over very long periods of time. In fact, at the end of the third quarter, Lockheed Martin had a backlog of work to do that totaled nearly $ 135 billion. Of course, its annual results can fluctuate, but this is not a struggling business, nor a business with a questionable future.

LMT PS Ratio Graph

LMT PS report data by YCharts

Given the sales outlook in 2022, investors are unlikely to be in a particular rush to buy Lockheed Martin. However, given its assessment metrics, it might be worth digging into as soon as possible. At some point, Wall Street will begin to price this well-positioned industrial giant with the understanding that the upcoming decline in revenue will be a temporary condition.

Gradually transforming waste into cash

Matt DiLallo (Waste Management): Waste Management is an eternal winner. The waste collection and recycling specialist has generated 21% total annualized returns over the past decade, easily surpassing the nearly 17% annualized total return of the S&P 500. Although the company is facing some winds Contrary in the short term, it looks likely to continue to produce attractive returns into 2022 and beyond.

One of the factors of Waste Management’s success is its ability to turn waste into cash. The company is on track to generate between $ 2.5 billion and $ 2.6 billion in free cash flow this year, and it is returning a large part of it to investors through share buybacks and its constantly increasing dividend. The company recently increased its dividend by 13% and authorized an additional $ 1.5 billion in share buybacks. Since 2019, Waste Management has returned over $ 3.5 billion to shareholders.

These increasing cash returns will help the company continue to please its shareholders for years to come. In addition, it should benefit from the continued investments it makes in expanding its operations. At the end of last year, it finalized its acquisition of Advanced Disposal for $ 4.6 billion and is on track to invest $ 700 million by the end of next year in the extension of its recycling capacities. These measures are helping Waste Management offset inflationary pressures, as the advanced phase-out agreement is expected to result in savings of $ 150 million per year.

While garbage collection might not be the most exciting business, Waste Management has a long history of high returns. This is expected to continue into 2022 and beyond, making Waste Management an excellent industrial stock to buy and hold for years to come.

It’s hard to ignore this steelmaker’s growth catalysts

Neha Chamaria (Nucor): Investor sentiment around the industrial sector this year has been heavily impacted by President Joe Biden’s infrastructure bill. Congress finally passed this law and Biden passed it a few weeks ago, but some industrial companies have been minting money for some time now. And these are the types of actions that I will be keeping my eye on in 2022 and beyond under the Biden administration. Concrete example: Nucor.

Nucor, the largest steel producer in the United States, achieved a record quarter after quarter record this year. And on December 15, management said it expects the fourth quarter to be a record as well, as steel demand and steel prices remain high. In fact, demand is so strong in key end markets like non-residential construction that the company is increasing capacity, and management has said it expects “another year of strong profitability” in 2022.

Yet despite all of this, Nucor is trading at remarkably cheap valuations, with a price-to-earnings ratio of around 7. This month it also increased its dividend for the 49th consecutive year and announced a buyback program. of $ 4 billion worth of shares to replace its existing $ 3 billion program. It’s a win-win situation for shareholders, and once new federal infrastructure spending kicks in, Nucor could become even more generous to shareholders. In short, this action is an essential watch for 2022 and beyond.

10 stocks we prefer over Lockheed Martin
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* Returns of the portfolio advisor as of December 16, 2021

Matthew DiLallo is the owner of Waste Management. Neha Chamaria does not have a position in any of the stocks mentioned. Reuben Gregg Brewer owns Nucor. The Motley Fool recommends Lockheed Martin and Waste Management. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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