Technological advancements like artificial intelligence (AI) are reshaping the machinery industry in today's rapidly evolving world. As the industry sprints toward a digital future, companies are reconsidering their production strategies to meet the soaring demand. This shift is driving competition among industry leaders to establish new manufacturing centers and capitalize on the growing opportunities.

Investors looking to tap into the potential of this transformation could consider investing in fundamentally sound industrial machinery giants like Eaton Corporation plc (ETN), Caterpillar Inc. (CAT), and Honeywell International Inc. (HON). These companies are well-positioned to dominate the next decade thanks to their strategic initiatives and strong market presence.

A combination of technologies, such as robotics, artificial intelligence, and machine learning, is being utilized to automate a broader range of tasks, enhancing productivity and reducing costs. With the increasing adoption of automation and smart technologies, the industrial machinery market is anticipated to grow $1.3 trillion by 2032, exhibiting a CAGR of 7.5%. This wave of innovation makes the market attractive for investors seeking long-term gains.

AI, in particular, is revolutionizing the manufacturing industry by introducing smart solutions that improve efficiency and reduce costs. From predictive maintenance to inventory management, AI optimizes operational processes and is now a critical component of Industry 5.0, enabling hyper-personalized, human-centric smart factories. The global AI in manufacturing market is expected to reach $20.80 billion by 2028, growing at a CAGR of 45.6%.

Let’s evaluate the fundamental aspects of the three Industrial - Machinery stocks mentioned above, starting with the third choice.

Stock #3: Honeywell International Inc. (HON)

HON engages in aerospace technologies, building automation, energy and sustainable solutions, and industrial automation businesses globally. It operates through four segments: Aerospace; Honeywell Building Technologies; Performance Materials and Technologies; and Safety and Productivity Solutions.

On July 26, the company’s Board of Directors declared a quarterly dividend of $1.08 per share. This dividend will be paid on September 6, 2024, to shareholders on record as of August 16, 2024. HON pays an annual dividend of $4.32, which translates to a yield of 2.18% at the current share price. Its four-year average dividend yield is 2.08%.

On July 10, HON announced the acquisition of Air Products and Chemicals, Inc. (APD)’s liquefied natural gas (LNG) process technology and equipment business for $1.81 billion in an all-cash deal. This purchase will enhance HON’s energy transition capabilities, providing a comprehensive end-to-end solution for global customers.

The acquisition is expected to drive diversified growth and innovation in aftermarket services and software and will immediately accret to the company's sales growth, segment margin, and adjusted EPS in the first full year of ownership.

For the second quarter of 2024, which ended on June 30, HON's net sales increased 4.7% year-over-year to $9.58 billion, while the operating income margin improved by 10 basis points to 20.7%. Its operating income stood at $1.98 billion, up 5% year-over-year, while its attributable net income amounted to $1.54 billion, representing an increase of 3.8% from the last year. Also, the company’s adjusted EPS for the quarter increased 8.3% year-over-year to $2.49.

Building on this quarter's momentum and successful acquisitions, the company updated its 2024 outlook. HON anticipates full-year sales to range between $39.10 billion and $39.70 billion, with 5% to 6% organic growth. It also forecasts adjusted EPS in the range of $10.05 to $10.25, reflecting a solid increase of 6% to 8%.

Street expects HON’s revenue and EPS for the fiscal third quarter (ending September 2024) to increase 7.8% and 10.2% year-over-year to $9.93 billion and $2.50, respectively. In addition, it surpassed the consensus EPS estimates in each of the trailing four quarters, which is excellent.

Shares of HON have gained 6.4% over the past year to close the last trading session at $198.50.

HON’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

HON has a B grade for Stability. It is ranked #34 out of 78 stocks in the A-rated Industrial - Machinery industry. Click here to access the other HON ratings for Growth, Value, Momentum, Sentiment, and Quality.

Stock #2: Caterpillar Inc. (CAT)

CAT is a manufacturer of construction and mining equipment, off-highway diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives. The company operates through its four segments: Construction Industries; Resource Industries; Energy & Transportation; and Financial Products.

On August 13, CAT announced plans to expand its Lafayette Engine Center, enhancing its capacity to build and test new engines, genset packages and provide aftermarket components. The expansion involves increasing the campus’ footprint, refurbishing equipment, and investing in additional equipment. This move aims to meet the rising global demand for backup and prime power in data centers, fueled by the growing adoption of cloud computing and generative AI.

On May 16, the company announced a $90 million investment to upgrade its facilities in Schertz and Seguin, Texas, to produce the new Cat® C13D industrial engine. The plan includes $70 million for new equipment installations in Schertz to manufacture C13D engine components and $20 million for assembling the engines in Seguin. This investment positions CAT to enhance its industrial engine production capabilities, supporting future growth and maintaining its competitive edge in the market.

CAT’s total sales and revenue for the fiscal second quarter (ended June 30, 2024) amounted to $16.69 billion, while its revenue from financial products stood at $849 million, up 9.8% over the prior year quarter. The company’s adjusted profit and adjusted profit per share increased by 2% and 7.9% year-over-year to $3.76 billion and $5.99, respectively.

Analysts expect CAT’s revenue for the fiscal year ending December 2025 to grow 3.5% year-over-year to $67.74 billion, while its EPS for the same period is expected to increase 3.3% year-over-year to $22.76.

Over the past nine months, the stock has gained 38.4%, closing the last trading session at $343.48.

It’s no surprise that CAT has an overall rating of B, equating to a Buy in our POWR Ratings system. It also has a B grade for Stability and Quality. Out of 78 stocks in the same A-rated industry, CAT is ranked #29.

Beyond what is stated above, we’ve also rated CAT for Growth, Value, Momentum, and Sentiment. Get all CAT ratings here.

Stock #1: Eaton Corporation plc (ETN)

Headquartered in Dublin, Ireland, ETN operates as a power management company through five segments: Electrical Americas; Electrical Global; Aerospace; Vehicle; and eMobility. It is also engaged in providing thermal monitoring for critical electrical equipment globally.

On July 24, the company declared a quarterly dividend of $0.94 per ordinary share, payable on August 23, 2024, to shareholders of record as of August 5, 2024.

ETN’s annual dividend of $3.76 translates to a 1.27% yield on the prevailing prices, while its four-year average dividend yield is 1.92%. Its dividend payouts have grown at CAGRs of 6.9% and 5.7% over the past three and five years, respectively. Also, ETN has a record of 9 years of consecutive dividend growth.

On July 2, ETN and Jebel Ali Free Zone agreed to build a new sustainable campus. The project will extend ETN’s research, engineering, and manufacturing capacity and aims to significantly boost Dubai’s capabilities in advanced electrical and electronic components manufacturing. The construction of the facility will begin in 2025 and is anticipated to be completed in 2026.

In the fiscal second quarter that ended on June 30, 2024, ETN’s net sales increased 8.3% year-over-year to $6.35 billion. Its adjusted earnings came in at $1.09 billion, up 23.7% year-over-year, while its adjusted earnings per share grew 23.5% from the prior-year quarter to $2.73. In addition, the company’s free cash flow rose 9.8% from the year-ago value to $759 million.

For the third quarter of fiscal 2024, the company expects adjusted EPS to be between $2.73 and $2.83. Organic growth is forecasted to range between 8% to 9%. The segment margins are anticipated to grow in the range of 23.5% to 23.9%.

The consensus revenue estimate of $6.37 billion for the fiscal third quarter (ending September 2024) represents an 8.3% increase year-over-year. The consensus EPS estimate of $2.80 for the ongoing quarter indicates a 13.2% improvement year-over-year. The company has an excellent earnings surprise history; it surpassed the consensus EPS estimates in each of the trailing four quarters.

ETN shares have surged 37.3% over the past year and 30.8% over the past nine months to close the last trading session at $296.68.

ETN’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.

It has a B grade for Sentiment and Quality. Within the same industry, ETN is ranked #14. Click here to access the additional ratings for ETN (Growth, Value, Momentum, and Stability).

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

2024 Stock Market Outlook >

CAT shares were trading at $343.86 per share on Monday afternoon, up $0.38 (+0.11%). Year-to-date, CAT has gained 17.74%, versus a 18.00% rise in the benchmark S&P 500 index during the same period.

Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.

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