Price action in the stock market is usually one of the best signs of what’s about to come, and all price action is driven by volume. With these two fundamental factors at play, investors can safely assume that a lot of attention was headed to those in the industrial and manufacturing sectors after the United States presidential election results.
Investors can directly point to the Industrial Select Sector SPDR Fund (NYSEARCA: XLI) and its 6.2% rally over the past week for confirmation. These are supposed to be the dull and steady stocks of the economy, so why is there so much price action all of a sudden? The reasoning may come from the 24-month contraction in the manufacturing PMI index, which is now an underwater volleyball waiting to pop out under the right circumstances.
The right circumstances could benefit some stocks more than others, which is why today’s list is more important than ever for investors to consider in their buy lists. Those like Deere & Co. (NYSE: DE), United States Steel Co. (NYSE: X), and Cummins Inc. (NYSE: CMI) have their own fundamental tailwinds playing behind them to deliver a potential market-beating performance.
Deere Stock Gets a Boost as Wall Street Analysts Project Massive Upside
Even though Deere stock trades at 94% of its 52-week high already, some Wall Street analysts still think it could deliver an additional double-digit rally in the coming months. Today's consensus price target of $420.7 calls for up to a 6.8% upside in this large-cap stock.
However, there are those willing to take the risk and place an outlier price target above the consensus to reflect the economic and fundamental realities of both Deere stock and the underlying industry. Those at Truist Financial call for up to $496 valuations on Deere stock, a significant upside of as much as 26% from where the stock trades today, not to mention a new 52-week high.
Another gauge for investors to consider in this bullish sentiment in Deere stock is the decline in the company’s short interest, which plummeted by 11.2% during the past month alone. This bearish capitulation can be seen as the withdrawal of short sellers in the face of the high possibility of a new rally for the stock.
According to trends in the agricultural sector, Deere is positioned at the front and center of a new cycle that will call on its products and services to enable it to take place. This could also be why those at the Ontario Teachers Pension Plan Board decided to boost their holdings in Deere stock by as much as 11.6% as of November 2024.
This new allocation brought the group’s investment to a high of $559.9 million today, giving investors another bullish leg to stand on in the coming quarters.
New Interest in U.S. Steel Stock Could Trigger a Fresh Double-Digit Rally
After the merger offer from Japanese steelmaker Nippon Steel Co. (OTCMKTS: NISTF) fell through in the past, investors were confirmed that the industry was so cold that no deals would be completed at compressed valuations. This also meant that insiders were willing to wait for a more realistic valuation.
This is where United States Steel stock comes into play for this potential new manufacturing upturn. Considering that the stock now trades at a low 0.8x price-to-book (P/B) ratio today, there is a 20% discount to the company’s book itself, a valuation that might soon recover on the improving industry fundamentals, but that’s not all.
Other peers in the material sector trade at an average 3.6x P/B multiple while not being as big of a legacy name as United States Steel.
This means that the stock is potentially set up for a more than tripling if the valuations come close to the industry norm, and today’s fundamental and industry tailwinds could be the bridge between these two prices.
Then there is the fact that the stock trades at only 82% of its 52-week high, giving it enough room to catch up to its previous high. The 7.8% rally in the past week alone is a testament to what could come for the stock in the coming months.
Rising Business Activity Points to Big Gains for Cummins Stock
If the industrial sector is going to see the type of activity that the price action suggests, then transportation activity in trucking and rail will be called upon to make all the demand work. This is where Cummins stock, a diesel engine maker, comes into play.
This might be one of the trends behind Citigroup analysts' decision to boost Cummins stock’s price target to $375 a share and reiterate a Hold rating. Cummins stock would have to reach a new 52-week high to prove these new views right.
A similar trend is happening in this stock as well. Given the 7.7% decline in Cummins stock’s short interest over the past month, bearish capitulation means that the future is starting to tilt in favor of higher prices and bullish investors ahead.
Some institutional buyers came into the scene to replace the bears who had left their short positions behind.
Swiss National Bank decided to boost its holdings in Cummins stock to a high of $131.4 million as of November 2024, another gauge of bullish sentiment in the stock.
