Industrial firms Boeing and United Technology reported strong earnings results Wednesday. Is now time for investors add industrials their portfolios? Jerry Castellini, president and chief investment officer of CastleArk Management, and John Merrill, founder and chief investment officer, of Tanglewood Wealth Management, shared their sector views.
“It’s been over 20 years that we’ve had a very sharp, hard inventory liquidation cycle throughout the world economy,” Castellini told CNBC.
“That had a more pronounced effect on the companies and we see that having a huge impact on earnings surprises, starting from the second and third quarters this year.”
Castellini added that the industrials will have "much further to go" in terms of earnings surprises. (Scroll down to see Castellini's stock picks.)
In the meantime, Merrill said a lot of the earnings surprises are already priced into the stocks. He remains neutral on the sector.
“These companies have had a great run since the beginning of this year,” he said. “We look at the price earnings multiples of the group as a whole, they’re at the very high end of that P/E multiple—so we’re a little more cautious on the group.”
Merrill said he is also concerned about rising cost of materials and stimulus programs that will eventually come to a halt.
“And even China is tapping on the breaks,” he continued. “That’s going to pull the plug on some long-term projects and may even stall some of the shorter-term projects.”
“We watch a basket of Chinese securities that are leveraged to the capital goods sector in China and they’ve taken a huge hit since the beginning of the year, so that could be a warning sign for the future.”
Castellini Likes:
Johnson Controls
Emerson Electric
Bucyrus International
Paccar
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Disclosures:
No immediate information was available for Castellini or Merrill.
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