We recently compiled a list of the 10 Best Industrial Machinery Stocks to Buy Now. In this article, we are going to take a look at where Eaton Corporation plc (NYSE:ETN) stands against the other industrial machinery stocks.
Industrial stocks form the backbone of the American economy, encompassing companies that manufacture and maintain equipment used in the construction and manufacturing markets, such as compressors, turbines, and hydraulic systems. Their presence in the Dow Jones highlights their significance in the market.
According to Global Market Insights, the industrial machinery market, which was valued at $693.7 billion in 2023, is projected to grow at a compound annual growth rate of 7.5% between 2024 and 2032 as a result of the increasing application of automation and smart technologies, which significantly boost efficiency and production. Material handling and robotics are two important industries driving this expansion since they are essential to contemporary industrial operations.
Regionally, the Asia-Pacific area is driving this expansion as per the aforementioned research, with growing industrialization in countries like China and India. In terms of country, the United States is leading the North American industrial machinery market in terms of revenue, with an estimated 2023 revenue of $246.5 billion and a projected 2032 revenue of $402.9 billion. Moreover, North America accounted for 45% of the industrial machinery market in 2023.
Looking ahead, according to Deloitte’s Manufacturing Industry 2024 Outlook, the manufacturing sector is utilizing the Infrastructure Investment and Jobs Act, CHIPS Act, and Inflation Reduction Act to boost growth through improved semiconductor manufacturing and construction. Digital transformation is still essential in spite of economic challenges and a lack of skilled workers. Industrial metaverse capabilities are being integrated into smart factory systems, which are 12% more productive and cited by 86% of manufacturing leaders as essential for competitiveness. A game-changer, generative AI reduces labor restrictions while improving supply chain efficiency and product design.
That said, according to Interact Analysis’s Manufacturing Industry Output Tracker (MIO), which Industrial Machinery Digest released on May 30, 2024, the global manufacturing industry is predicted to grow by just 0.6% in 2024, showing stagnation or minor decline in the majority of regions. The study mentioned that China’s growth estimate was reduced from 2.8% to 2.4%, pointing out economic issues that may affect its 50% global manufacturing share. Although a slight decline is predicted in 2026 before a consistent rise through 2028, a recovery is projected in 2025 as global conditions improve. While Taiwan, South Korea, and Singapore benefit from the semiconductor resurgence, the United States exhibits stronger manufacturing fueled by rising consumer expenditure and moderating inflation. Challenges include the slowdown in European manufacturing and pressures on the machinery market caused by high loan rates, which increase costs and reduce order intake. High living expenses still limit demand even though post-Covid supply chain problems have decreased.
Adrian Lloyd, CEO of Interact Analysis, made the following comment in Manufacturing Industry Output Tracker (MIO):
“The global outlook for manufacturing output is mixed to say the least. Our projections are holding but there are no clear signs of where recovery will come from and how strong it will be. As a result, we will be watching closely to see how constrained consumer spending in China, a strengthening US economy and global events will affect conditions.”
He further added:
“The machinery market appears to be experiencing more challenging conditions than manufacturing overall, as global uncertainty leads to caution around investment in equipment.”
Data from the Federal Reserve in October revealed that U.S. industrial production dropped in September, largely due to reduced factory output influenced by a strike at Boeing Co. and the impact of two hurricanes. Production across factories, mines, and utilities declined by 0.3%, following a revised 0.3% increase in the previous month. However, the industrial sector of the broader market has risen by 22.4% since the beginning of the year.
We sifted through holdings of Industrial Machinery ETFs and online rankings to form an initial list of 20 industrial machinery stocks. Then we selected the 10 stocks that were the most popular among institutional investors. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024, according to Insider Monkey’s database. We have used the stock’s revenue growth (year-over-year) as a tiebreaker in case two or more stocks have the same number of hedge funds invested.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here)
A technician standing in the middle of a power station, inspecting a power distribution system.
Number of Hedge Fund Holders: 93
Joseph Eaton founded the company in 1911, first selling truck axles in New Jersey. Since then, Eaton Corporation plc (NYSE:ETN) has grown into a major industrial force, primarily through acquisitions in several end sectors. The two main categories of Eaton’s portfolio are its industrial and electrical operations. About 70% of the company’s revenue comes from its electrical portfolio, which offers parts for data centers, utilities, and residential and commercial structures. The remaining 30% comes from its industrial sector, which provides parts for passenger and commercial cars as well as airplanes.
Eaton Corporation plc (NYSE:ETN) produces highly engineered, mission-critical components that address client concerns in key infrastructure areas worldwide. Since a large percentage of Eaton Corporation plc (NYSE:ETN)’s products are integrated into client operations and require periodic maintenance or replacement, their profit margins are typically higher than those of the equipment’s sale. The company has one of the biggest installed bases of electrical equipment in the world, and its expansion is being fueled by factors like higher safety and efficiency regulations, reshoring supply chains in the US, and the explosion of data generation and energy use.
In Q3 2024, Eaton Corporation plc (NYSE:ETN) reported revenue of $6.3 billion, up 8% on both a total and organic basis. The company’s operating cash flow in Q3 2024 was $1.3 billion, up 15% from the year before, and its free cash flow was $1.1 billion, up 23% from the year before.
Eaton Corporation plc (NYSE:ETN) has given positive outlooks for the future, predicting an 18% increase in adjusted EPS to $10.75 to $10.81 in 2024. The business also anticipates double-digit market growth in 2025 for electric vehicles, data centers, and commercial aerospace.
To meet this demand, Eaton Corporation plc (NYSE:ETN) is making significant expenditures; production capacity investments now total $1.5 billion, up $500 million from earlier projections. A growing backlog, record financial performance, and targeted investments in high-growth industries position Eaton Corporation plc (NYSE:ETN) for solid expansion.
Thomas Bailard’s Bailard Inc. was the largest shareholder in the company among the funds in Insider Monkey’s database. It owns 56,541 shares worth $1.74 million as of Q2.
Overall ETN ranks 1st on our list of the best industrial machinery stocks to buy now. While we acknowledge the potential of ETN as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ETN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.