Subscribe to Entrepreneur for $5

Should You Invest in the Industrial Sector in 2022? 3 Industrial Stocks to Consider

Thinking industrial stocks in 2022? Take a look at three promising stocks to spice up your portfolio.

This story originally appeared on MarketBeat

A healing economy often favors specific sectors, and the industrial sector is no exception. In fact, forward-thinking vaccines were thought to be the savior and bolster the economy in 2021. But in 2021, certain sectors ran out of steam and Q3 saw commodity-related cyclical sectors lag, including energy, industrials and materials. Investors tended to favor communication services, utilities and health care. contributor/ - MarketBeat

It's a new year, but should you load up on industrial stocks or not even entertain the idea? Let's walk through some up-and-comers in this sector that you may want to add to your portfolio in 2022.

What is the Industrial Sector?

The industrial sector is a segment of the economy that involves businesses that help other businesses manufacture and distribute their products. Since products and services go to other businesses rather than directly to consumers, it's considered a secondary sector driven by supply and demand from other businesses in other sectors. 

Divisions within the Industrial Sector

The industrial goods sector includes companies involved with aerospace and defense, industrial machinery, tools, lumber production, construction, waste management, manufactured housing, and cement production. Let's go through each one of these divisions.

  • Aerospace and defense: The industrial sector includes the aerospace and defense industry, which manufactures civil or military aerospace and defense equipment, parts or products. Examples of products include military aircraft, helicopters, drones, tanks, ships and other marine vessels. 
  • Industrial machinery and tools: Industrial machinery builds tools and heavy equipment for the construction and mining industries as well as machines for infrastructure development in energy production and distribution. Industrial machinery formation may use a variety of processes, such as metal forming, casting, forging, welding and more. Tools and fabrication equipment in the industry can range from small-scale machinery to smaller components. For example, the industry may involve power saws, drills, hand tools, metal-working machines, polishing machines, presses, boilers, industrial ovens, small parts and hardware and facility equipment (industrial heaters, furnaces, forklifts and other types of large industrial machinery.)
  • Lumber: The lumber industry refers to forestry, logging and the production of primary forest products and wood products like furniture and secondary products like wood pulp.
  • Construction: The construction industry focuses on larger manufacturing and industrial buildings, such as the construction of waste and garbage disposal plants, factories, plants, mills, industrial laboratories and testing facilities.
  • Waste management: The waste management industry concerns all of waste management, waste dumping, waste recycling and waste prevention.
  • Manufactured housing: Manufactured housing concerns itself with home units constructed primarily or entirely off-site prior to being moved to a piece of property where it is set, put together in factories.
  • Cement production: Concrete is used to construct buildings, highways, bridges, roads and more and benefits from large infrastructure production.

Does this list give you any burgeoning ideas of stocks you might want to consider?

Three Stocks to Consider in the Industrial Sector

The year 2022 could bring about healthy earnings due to underlying demand and normalizing supply chain and inflation that may turn 2022's head. How might you outfit your portfolio within the industrial sector? Give these stocks a try. 

Generac Holdings (NYSE: GNRC)

Generac Holdings Inc. (NYSE: GNRC), headquartered in  designs and manufactures power generation equipment and other power products such as energy storage systems and power products for the residential, light commercial and industrial markets. Generac manufactures portable, residential, commercial and industrial generators. 

The company's production rose in Q3 2021 and showed year-over-year revenue growth of 34% to a record $943 million and shows consistent market outperformance. Residential product sales grew 33% to $609 million, a wide margin, up from $459 million in sales from last year. Its commercial and industrial product sales increased 47% to $258 million, up from $176 million in the prior year. Positive sales, earnings and stock price momentum puts Generac squarely in .

This year, the company acquired:

  • Chilicon Power, a designer and provider of solar grid-interactive microinverter and monitoring solutions.
  • Apricity Code Corporation, a company that develops energy technology solutions.
  • Off Grid Energy, a designer and manufacturer of industrial-grade energy storage systems in the United Kingdom.
  • Tank Utility, a provider of IoT propane tank monitoring solutions for propane fuel logistics.

It also signed a purchase agreement to acquire ecobee, which makes smart thermostats for energy savings. 

Builders FirstSource Inc. (NYSE: BLDR)

Builders FirstSource Inc., headquartered in Dallas, supplies and manufactures building materials, manufactured components and construction services for factory-built roof and floor trusses, wall panels and stairs, vinyl windows, custom millwork, trim and engineered wood.The company creates the items for homebuilders, subcontractors, remodelers and consumers in all areas of the country.  

Q3 considerable outperformance, with net sales for the period totaling $5.5 billion, a 62.7% increase. Core organic sales increased by 16.1%, while commodity price inflation contributed 38.6% to net sales. Core organic sales grew by an estimated 31.2%, led by 44.6% growth in manufactured products.

The company expects strong demand in single-family housing and strategies to drive above-market growth.

Applied Industrial Technologies (NYSE: AIT)

Applied Industrial Technologies (NYSE: AIT), based in Cleveland, Ohio, is one of the largest distributors and service providers of industrial motion and control technologies, with a focus on bearings, power transmission, fluid power, flow control, and automation solutions. Its service center-based distribution segment provides customers with a wide range of industrial products through a network of service centers and its fluid power and flow control businesses specialize in distributing, creating and repairing hydraulic and pneumatic fluid power technologies and engineered flow control products and services. 

Q1 results showed net sales of $891.7 million, up 19.2% year over year. Applied Industrial Technologies was up 16.3% on an organic basis and showed a net income of $53 million, or $1.36 per Share and free cash flow of $45 million. If you're after dividends, the company also announced a quarterly cash dividend of $0.33 per common share.

Ready to Add Industrial Stock to Your Collection?

When looking for investment opportunities in the industrial sector, look for stocks poised for growth and overall long-run gains. Look carefully into a company’s financial history — a history of revenue and earnings growth can be a sign of great things to come.

Entrepreneur Editors' Picks