Industrial stocks got a boost this week as investors grew more optimistic about the prospects of the economy reopening.
With a possible federal infrastructure plan on the horizon, two market analysts flagged their favorite stock picks for riding what could be a sustained rally in the group.
TradingAnalysis.com founder Todd Gordon had the stock of wood-alternative decking manufacturer Trex on his radar.
Though the shares are far from cheap, trading at a price-to-earnings multiple of nearly 70, “the chart’s really strong,” Gordon told CNBC’s “Trading Nation” on Thursday.
The stock’s parallel resistance comes in only around the $115 mark, Gordon added, leaving Trex room for a potential gain of 17.1% from its previous closing level $98.18 per share. Trex traded about 1.7% higher on Friday around $99.30 per share.
“It’s riding the wave of sort of everyone leaving the city, heading out to the country. I know when the weather breaks in the Northeast and Covid is over, we’re going outside to hang out outside,” said Gordon, who holds the stock in his growth portfolio.
“It was also named to Forbes’ top medium-sized companies for 2021. The company’s been reinvesting profits well. A competitor, if you want to kind of balance it out, [is] Azek. They just went public in June of last year and they’re trying to break above as well. So, watch that outdoor play in Trex.”
Those seeking more diversified exposure should look into more established players in the space, said Delano Saporu, founder and CEO of New Street Advisors Group.
“For all investors, especially long-term investors, you want some of that defensibility in your portfolio, you want some of that essential industrial business in your portfolio,” Saporu said in the same interview. “We like, and have been looking at 3M just for this fact that it’s a diversified business.”
Shares of the Scotch Tape maker have popped up 9% in the past three months. Saporu also pointed out that sales from the manufacturer’s health-care segment has been growing. Sales from that business segment alone expanded by 12.3% in the fourth quarter of 2020, 3M said last month.
Another way to play industrials could be with a longer-term bet on travel restarting, Saporu said.
“Travel, when Covid is over, when things are more clear, is something that I think a lot of people are going to be doing,” he said. “People are looking for that opportunity to get away and maybe go to somewhere warmer, and I think you want to look at those plays if you’re someone that wants to balance out your portfolio.”
“These names are not under the radar, but I think these are an opportunity for longer-term investors to kind of see what they can get as far as these names go when it comes to diversifying their portfolio,” he said.
Disclosure: Gordon owns shares of Trex.