Machinery

Early 2018 exuberance quickly gave way to tariff and trade challenges, with late cycle fears, oil’s sell-off, pressure on mined commodities as well as emerging market concerns all part of a sharp reversal in sentiment. In the process, Machinery surrendered to normal patterns and after a strong 2016-2017, 2018 marked a year of considerable underperformance, despite earnings performing well ahead of initial expectations. Barring a much sooner slow-down than anticipated, Machinery stocks stand well-positioned today. Absolute and relative valuation are at severe lows. Over the past 15 years, there’s only one instance with consecutive years of underperformance vs the S&P 500. Furthermore, in four of the last five U.S. expansions, Machinery stocks peaked only several months before the recession started.  From a cycle perspective, we prefer Ag, Mining and U.S. non-res and general industrial exposure.  We’re more cautious on commercial vehicles following record demand levels in 2018.  While we think pockets of Machinery present a relatively favorable risk/reward, our downturn scenario work suggests a nimble approach with today’s low multiples still not capturing recession downside risk at whatever point a slowdown materializes.

Top Picks:

  • United Rentals, Inc. (URI)
  • Rexnord Corporation (RXN)


This website uses cookies. We use cookies to improve the user experience, track anonymous site usage and store authorization tokens. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.