Wall Street says buy these 2 industrial-focused stocks. Here’s our view on each

Published Mon, Dec 11 20234:05 PM ESTUpdated Mon, Dec 11 20234:11 PM EST

Wall Street analysts are saying it's a great time to invest in two of our favorite industrial-focused stocks: Honeywell and Linde . Morgan Stanley on Monday raised its price target and kept its buy-equivalent rating on industrial gas and engineering firm Linde. The analysts said the chemicals industry is slowly coming out of a trough "but at a very modest slope." Meanwhile, Bank of America late Friday cut its price target but maintained its buy rating on Honeywell after last week's announced purchase for $4.95 billion of Carrier 's security business, which makes electronic locks, video monitoring apps, and fire alarms. Jim Cramer said he's even more bullish on industrial conglomerate Honeywell, which focuses on safety and productivity solutions as well as aerospace, building automation, and sustainability. As for Linde, Jim has long touted the stock as the Club's favorite way to invest in the global transition to clean energy. Here's a breakdown of the new Wall Street research and our thoughts, too. LIN YTD mountain Linde (LIN) year-to-date performance Morgan Stanley raised its price target on Linde to $450 per share from $420, which represents more than 10% upside to Monday afternoon's levels around $406. The analysts made their call as part of a barbell strategy regarding the chemical industry: what they call "grinders/compounders" like a Linde paired with "sentiment inflection plays" like LyondellBasell . They describe the approach as "less absolute percentage upside on the one hand, but less downside risk and likely less volatility on the other." We also view Linde as an earnings compounder thanks to its dependable business model. Each year, the company builds on earnings through strong pricing power and productivity-driven cost improvements. Profit gains from these two initiatives are high Linde has been able to grow earnings by a double-digit clip this year without any help from volumes. Linde's third quarter report marked the 19th consecutive time the company beat and raised earnings. In the investment thesis part of the note, the analysts cited the onslaught of federal spending from the Biden administration's Inflation Reduction Act as positive — a similar driver of our case due to Linde's exposure to clean hydrogen projects. During Linde's post-earnings call in October, management said they see the climate and tax bill passed in 2022, which provides $369 billion in funding for various green initiatives, as an expected tailwind. Big picture, the analysts at Morgan Stanley said the spending unlocked by the Inflation Reduction Act "brings decarbonization opportunities into the investment thesis and allows for the stock's EBITDA multiple to recognize non-macro reliant and environmentally friendly earnings growth." They added that these catalysts "should reduce competition/increase returns on traditional gas projects." On Dec 1, we increased our Club price target on Linde to $440 per share from $410. However, with the stock closing at a record high on Nov. 24, we would like to see a pullback before considering buying more — hence, our 2 rating . HON YTD mountain Honeywell International (HON) year-to-date performance Bank of America reduced Honeywell's price target to $250 per share from $265 but maintained its buy rating on the stock after the Carrier security business offer. The analysts described the acquisition as a net positive for the company's multiple, adding that "more proactive capital allocation will be the key to the stock re-rating back to its historical premium." They said they "view the acquisition as an indication that CEO Vimal Kapur will be more aggressive on capital allocation than his predecessor." "You will never see a rollback in safety and security," Jim said during Friday's post-deal interview with Vimal Kapur, who took over as Honeywell CEO in June. It's the first major deal on Kapur's watch and follows his business segment realignment back in October. Kapur told Jim on Friday that Honeywell would consider more acquisitions in the future if management feels like they will benefit the company's overall portfolio. Shares, which sold off on the deal news Friday, added more than 2.5% on Monday to roughly $200. We most recently added some Honeywell shares near the end of September around the $187 level. The Club's price target is $225, reflecting about a 12.5% premium to where the stock traded Monday afternoon. Coming out of a mixed third quarter , we see strong success in Honeywell's aviation business, but there were signs last quarter that the short-cycle parts of the business, like warehouse automation, were troughing. (Jim Cramer's Charitable Trust is long HON, LIN . See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. 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Wall Street analysts are saying it's a great time to invest in two of our favorite industrial-focused stocks: Honeywell and Linde.