Al Root
Industrial stocks' rising star has faltered, thanks to soaring oil prices, inflation fears, and a general malaise settling over the markets amid war in the Middle East.
Stock declines, however, always offer investors a chance to look for attractive entry points. Brokerage firm Mizuho has identified a few.
Industrial analyst Brett Linzey has been "sifting through the wreckage," adding that "history says [the] group could claw back lost gains."
Before fighting broke out in Iran, the Industrial Select Sector SPDR ETF was up almost 14% year to date, 13 percentage points ahead of the S&P 500. Since the fighting started, the ETF is down 10%, about four percentage points worse than the S&P's decline.
"Since the conflict with Iran began, much of the cyclical optimism that had been priced into our coverage at the start of the year has been meaningfully unwound," wrote Linzey on Thursday. That optimism was built in part on the expectations for lower interest rates, expanding industrial production, and overall economic growth. But in recent weeks, rates have risen, while growth expectations have fallen.
Still, the Iran conflict is likely to end in the coming few weeks, according to many Wall Street projections, and Linzey points out that industrial stocks tend to outperform after Middle Eastern conflicts. Beyond history, there are reasons to be encouraged, he says, pointing to low inventories, strong pricing trends, and strength in order activity.
Consumer-linked industrial stocks, such as Stanley Works, down more than 18% since fighting began through midday trading on Thursday, have been hit hardest, likely on the belief that oil prices will pinch consumers' purses. Energy-linked industrials, such as Emerson Electric, and short-cycle industrial stocks that rely on improving activity, such as Parker Hannifin, have been weak as well.
(Short cycle refers to companies that sell small, lower-priced items, which often go into long-cycle items. An aerospace parts distributor is a short-cycle company, delivering things to a long-cycle company, Boeing.)
Emerson and Parker stocks were down 16% and 10%, respectively, since the fighting started.
Linzey still likes consumer-facing industrials, such as tools maker Stanley Works, and water company Pentair, energy-linked industrials, such as process automation provider Emerson and valve maker Flowserve, and short-cycle industrial Parker Hannifin. He also still likes AI data center "havens," including electrical component maker Eaton, data center infrastructure provider Vertiv, and industrial distributor Applied Industrial Technologies.
The three "haven" stocks were down about 5% since fighting began.
The seven stocks, all rated Buy by Linzey, are trading for an average of about 21 times estimated 2027 earnings. The S&P 500 is closer to 18 times earnings. Vertiv has the highest PE ratio at 31 times. Stanley Works trades at 11 times.
As always, a screen is only the start of an investment process. After identifying an idea comes the harder work of company and stock evaluation.
Still, screens are important. They are a source of new ideas for investors, who should consider adding some beaten-down industrial stocks to their lists of potential investments.
Write to Al Root at allen.root@dowjones.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
March 26, 2026 17:33 ET (21:33 GMT)
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