Al Root

The S&P 500's gains evaporated in midday Tuesday trading after rallying earlier in the day. Investors should remain vigilant -- this tariff-induced downturn could still get worse -- but lower prices can be an opportunity to grab high-quality manufacturing stocks at a discount.

President Donald Trump's tariff policies have been particularly hard on manufacturers, which face potentially higher costs, lower demand, and retaliation from U.S. trading partners.

While the pain has been significant, Wall Street analysts covering the manufacturing sector are building lists of names they like the best. Barron's found a dozen in recent reports that investors should look at when the time to buy comes.

It would be a little aggressive to assume the worst is over. After starting the day in the green, both the S&P 500 and Dow Jones Industrial Average were down in afternoon trading. Coming into Tuesday's trading, the S&P 500 was off almost 11% since President Donald Trump's April 2 "Liberation Day" tariff announcement. The Dow had fallen about 10%.

Mizuho's industrial analyst Brett Linzey looked at several recent market events to understand how U.S. manufacturing stocks fared. The average peak-to-trough decline for five previous downturns was about 40%. The S&P 500 manufacturing sector was down 18% as of Monday's close, about halfway to that average.

In the episodes he identified, it took about 300 days for manufacturing stocks to reach their trough, although in the three events after the 2008-09 Financial Crisis, it only took about 160 days. It has been about 80 days since Trump's election in November.

These are just averages. There is a chance that this tariff episode could turn out to be more like the debt ceiling crisis -- when industrial stocks fell 27% -- or the Federal Reserve's interest-rate hike cycle in 2022 when industrial stocks fell 21%.

Declines make some stocks look more attractive. Some of the industrial shares Linzey rates Buy include Ametek, Carrier Global, Eaton, Honeywell International, Hubbell, Parker Hannifin, and Vertiv. All of those companies benefit from a combination of rising demand for electricity from growth in power-hungry artificial intelligence, the restoration of manufacturing in the U.S., or secular growth in commercial aerospace.

Coming into Tuesday trading, those seven stocks were down about 13% on average since April 2. The septet trade for an average of 19.9 times estimated 2025 earnings, according to FactSet. The S&P 500 trades for about 19.3 times.

Baird's industrial analysts suggest focusing on companies with pricing power and distributors that benefit from tariff-driven inflation. Trimble, Ingersoll Rand, Xylem, W.W. Grainger, and Wesco International made Baird's list of buys in the industrial space. Wesco and Grainger are distributors. Baird analyst Mike Halloran calls Ingersoll and Xylem high-quality companies. Baird analyst Robert Mason calls Trimble sales resilient.

Those five stocks dropped about 12% since April 2 and trade for an average of about 24 times estimated 2025 earnings.

Those are a dozen stocks to consider. As always, a stock screen or group of recommendations from Wall Street analysts is only a start. After any new ideas comes the critical work of understanding and valuing each business.

Investors should also be careful to not assume the crisis is over after a rebound. Volatility cuts both ways. In the summer of 2008, around the time Lehman Brothers went bankrupt, the S&P 500 lost almost 40%. But stocks still rose about 45% of the trading days.

Write to Al Root at allen.root@dowjones.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

April 08, 2025 15:31 ET (19:31 GMT)

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