Buying industrial stocks could be a winning strategy for investors as the sector gets a boost from strong earnings growth trends that are expected to help it outpace the broader market.
Profit growth for the S&P 500 industrials sector is expected to be twice as strong as growth for the S&P 500 itself, FactSet data show. Industrials as a sector are also trading at a slight discount relative to the broader market.
The sector fell 15 percent last year, its worst annual performance since the financial crisis. Concerns over U.S.-China trade negotiations as well as fear of an economic slowdown kept the group under pressure last year. Some of these worries are receding, however.
Earnings growth for the sector is expected to be 8.4 percent for 2019, the highest among all S&P 500 sectors, according to FactSet. In contrast, earnings for the S&P 500 overall are expected to increase 3.8 percent. Last year, S&P 500 earnings increased by at least 13 percent in all four quarters.
"Industrials are at least showing above-average growth," said John Davi, chief investment officer at Astoria Portfolio Advisors. "We're living in a world where growth is declining. S&P 500 earnings are de-accelerating, so if you can get stocks that have above-average growth to the S&P, then that's really attractive."
The industrial sector is among the three-best performing in the S&P 500 this year, rising 15.7 percent to date. The gains have largely been led by General Electric, which is up more than 40 percent this year after a dreadful 2018.
GE lost more than 56 percent of its value last year as investors worried about weakness in some of its key businesses and the company's ability to possibly sell those businesses. So far this year, however, investors have cheered the leadership of new CEO Larry Culp for his transparency in the company's turnaround process. Investors also feel the stock may have bottomed after hitting a low of $6.40 per share on Dec. 11.