The industrial sector is gaining confidence heading into 2025 after months of contraction, according to top business leaders and industry analysts.
“Cautious optimism is where we’re at today,” Goldman Sachs analyst Joe Ritchie told me at the Goldman Sachs Industrial and Materials conference this past week. “Several companies are expecting better growth in 2025 … It’s only a matter of time before it happens. It’ll inflect at some point in 2025.”
Recent data from the Institute for Supply Management (ISM) reveals the industry has been in contraction for the past eight consecutive months and 24 of the past 25 months.
The prolonged slump has weighed on the sector’s stocks. Since the start of the year, the industry’s largest companies have posted mixed performance, with stocks like GE Aerospace (GE) and Eaton Corporation (ETN) among the top performers, while UPS (UPS) and Union Pacific (UNP) have declined year to date.
The cautious optimism stems from several factors, including President-elect Donald Trump’s agenda. Trump’s economic policies include strategies widely supported by the business community, such as deregulation, infrastructure investment, and tax cuts.
HEICO co-president Eric Mendelson told me he sees Trump’s policies boosting investor confidence in the economy, creating a “very positive environment” for the industrial sector.
Industry executives are also largely encouraged about Elon Musk’s influence on the incoming administration. Robert Cardillo, chairman of the board at Planet Federal and chief strategist of Planet Labs, told me at the conference that Musk’s impact will likely be “good news” for the sector.
Planet Labs (PL) shares, along with the broader space industry, have soared since Election Day. The stock is up nearly 80% in the past month as investors bet the incoming administration will be supportive of the sector.
Looking ahead to 2025, Ritchie makes the case that companies that have streamlined operations and refocused their portfolios are best positioned for growth. His top pick in the sector is Parker-Hannifin (PH), citing the company’s decade-long transformation initiative.
“It’s a great company and very well run … About two-thirds of the business is tied to industrial activity, and about one-third of the business is tied to aerospace and defense. They’ve been able to perform incredibly well even at a time when the industrial markets haven’t been a tailwind for them,” Richie said.
He also said well-known names like Honeywell (HON) and 3M (MMM) are taking the right steps to become more focused and “transform the margins on the business.”