Investors cast wary eye on U.S. industrial stock rebound

Thu Mar 10, 2016 12:07pm EST
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By Lewis Krauskopf

NEW YORK, March 10 (Reuters) - Many U.S. industrial companies' shares that slid last year over concerns of an economic slowdown have regained their footing in recent weeks, but some investors and analysts suspect the stocks still may be standing on uncertain ground.

Shares of about 10 large industrial manufacturers and distributors, such as Caterpillar Inc, Parker-Hannifin Corp and Eaton Corp Plc, have climbed between roughly 5 percent and 15 percent this year, although most have not recouped significant declines they suffered in 2015.

In an extreme example, shares of mining equipment maker Joy Global Inc have jumped about 25 percent in 2016. That may seem impressive, but after last year's plunge of more than 70 percent, Thursday's price of about $15.50 is only about a quarter of the stock's high in 2014.

The industrials group broke ahead of the broader market in early February. The Standard & Poor's industrial sector index is off about 1 percent for 2016, but that is better than the 3.3 percent decline for the S&P 500.

Analysts pointed to various factors that could be supporting industrial shares: improving U.S. manufacturing indicators, stabilizing markets for oil and other commodities, and the weakening of the dollar, whose strength has undermined the competitiveness of U.S. manufacturers and the value of their foreign sales.

But it is not clear whether some struggling industries that are customers of these manufacturers, such as energy and mining, will strengthen or support growth.

"This was a quick catch-up, and I think you have to be really cautious as an investor not to assume that this resurgence is going to continue," said Kim Forrest, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh.

Just before earnings season got into full swing in late January, Robert W. Baird analyst Mig Dobre determined that the eight diversified manufacturers he covers were trading an average of 16 percent below their 200-day moving average, while seven machinery stocks were 27 percent below that mark.   Continued...