Machinery Stocks Are Poised For Big Gains

The bruised stock market is trying to find the floor but a few leaders in the construction and mining machinery industry are standing tall. What’s more, these stocks are carving bases and nearing buy points.




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The Machinery-Construction/Mining industry group has vaulted to a No. 8 ranking among IBD’s 197 industry groups. That’s up from No. 65 three weeks ago, No. 28 six weeks ago and 187th place three months ago. The group’s Relative Strength Rating is a stellar “A+”.

Dow Jones component Caterpillar (CAT) is the world’s leading manufacturer of construction and mining equipment, off-highway diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives. The heavy machinery stock is also leader of the five-member industry group, according to IBD Stock Checkup.

It boasts a strong Composite Rating of 98, just a notch below the perfect 99.

Machinery Stocks Gear Up

The machinery stock has also attained a high 95 Relative Strength Rating, while its relative strength line stands well into new high territory. The RS line measures a stock’s performance against the S&P 500.

The 85 Earnings Per Share Rating indicates solid quarterly profit performance, with analysts now forecasting 49% growth in the current quarter and 29% for the full year.

On Wednesday, the stock took a stab at breaking out of a cup-with-handle base, according to MarketSmith. Caterpillar stock poked above a buy point of  238.95, but retreated back into the handle on Thursday.

A relative strength line blue dot appears on the weekly chart. This symbol highlights stocks that are attempting to break out of bases with RS lines in new high ground. The potent combination often foretells powerful price advances.

U.K. based CNH Industrial NV (CNHI) also bristles with high IBD rankings as it hovers near a buy point.

The company builds construction and agricultural equipment, along with trucks and other commercial vehicles. Its $27.15 billion market cap is about a quarter the size of behemoth Caterpillar, but the stock is showing similar relative strength.

After peaking at 17.13 in January 2022, CNHI stock cascaded 38% to a low of 10.60 on July 14. By Dec. 2, it had jumped back to 16.73, which is 2% below the prior high. The rally heated up last month, when the stock surged 24%, with several upward price gaps along the way.

The stock is now close to a buy point and the RS line is solidly in new high ground.  It is also flashing a blue dot in the MarketSmith weekly chart.

The Composite Rating of 97 and RS Rating of 93 put it among the stock market elite. Now add in the 87 EPS Rating because analysts are looking for impressive 60% earnings growth for the current quarter. That would mark an acceleration from Q3’s 21% growth.

Caterpillar and CNH are members of the IBD Big Cap 20 list of stocks.

Flat Base For Terex

Terex (TEX), which makes equipment for the construction, infrastructure, mining and shipping industries, is working on a flat base. The stock is about 10% below a buy point of 46.57. You can find a weekly blue dot on this chart as well.

TEX stock has solid Composite and RS Ratings of 95, though its EPS Rating is a laggard 66. Earnings growth has averaged 38.7% the past three quarters, topped by a 79% Q3 increase.

That signals a turnaround from the 290% to 32% to 5% deceleration in the three previous quarters. But it’s not reflected in analyst views for 14% growth in 2023. The analysts were too conservative last quarter, missing 15% earnings upside, so watch to see if there are more upward surprises.

As for other sector stocks, Astec Industries (ASTE) and Manitowoc (MTW) don’t have much going for them at the moment, either fundamentally or technically, based on tepid IBD Ratings. But a bright spot for Astec, which designs and makes construction equipment, is that analysts see a rebound in 2023, predicting 72% earnings growth.

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Source: https://www.investors.com/research/ibd-industry-themes/machinery-stocks-build-up-strength/?src=A00220&yptr=yahoo