There are two ways investors can play this sector. If you believe the entire industry will do well as the economy improves, then stick to buying an industrials-focused ETF or mutual fund. The largest ETF is the Industrial Select Sector SPDR Fund (NYSE Arca: XLI), which is down 2.5 percent year-to-date but up 21 percent over the last 12 months.
Investors can also pick stocks, but they'll have to be choosy. Some subsectors have done better than others, and it's better to buy undervalued or, at the very least, fairly valued business.
Aerospace and residential construction are two areas that should continue to improve, said Arnold, while Bastasic pointed out that the transpiration subsector as a whole is undervalued compared to its historical norm. It's trading at 7.9 times EV-to-EBITDA, compared with 8.5 times in the past.
The commercial and professional services subsector is more fairly valued. It's trading at about 9.5 times EV-to-EBITDA, but it's less volatile than other sectors because cities always need to get rid of garbage, while capital goods look the least attractive. It's trading at about 10 times EV-to-EBITDA, which is above its historical norm.
When looking for a company to buy, first decide whether you want to own a more defensive name or not. Some of the more diversified operations, like 3M (NYSE: MMM), an industrial-focused technology company, are less volatile, but they may not see as much growth on an upswing.
These companies should have a strong leadership team who can guide them through down cycles and participate in the up cycles, said Arnold. "You have to have the confidence that your company is going to participate as much as its competitors," he said. "If they don't, then that will be a problem."
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Investors will have to be more active with more cyclical names, which means they'll have to buy when the going is good and sell when the cycle turns. Caterpillar (NYSE: CAT) is one of the more cyclical names that Arnold follows, because its fortunes are tied into the mining industry's fortunes.
Bastasic, who likes the less cyclical names, is also keen on companies that pay a dividend—many in the sector pay between 1.5 percent and 2.5 percent—and he wants to see high return on capital.
Cash-flow sustainability is also important, as these companies will have to eventually manage through another downturn, and profitability is also key.
Choose the right business, though, and you could see around 10 percent earnings growth if not more in this sector, said Bastasic.
He hopes to take advantage of that growth soon. "We're definitely going to be buying more," he stressed. "We're just waiting for things to come our way."