Recovery in several key Machinery end markets continues to strengthen following declines that started as early as 2012.  The 2015-16 industrial recession further weighed on Machinery demand and drove severe declines in mining, oil and gas and ag equipment.  The depth of those downturns leaves recovery runway in ag, mining, oil and gas, pockets of construction equipment and general industrial related demand.  We’re encouraged by machinery specific data trends, but following strong stock gains in 2016 and 2017 along with current trade concerns, the machinery group remains broadly under pressure.  Progress on trade agreements that diminishes current uncertainty is key to returning focus on fundamentals, which we believe are still well positioned to support further recovery expansion.  A stronger backdrop should also support better pricing and healthy incremental margins.  While cycle positioning in off-highway markets looks attractive, we’re more cautious on on-highway commercial vehicles where synchronous global growth is driving continued strength and leaves limited upside to volumes.

Top Picks:

  • Rexnord Corporation (RXN)
  • Caterpillar Inc. (CAT)
  • Deere & Company (DE)