What to Expect From Industrials in 2009

Industrials follow the economy closely. This is why they have lost a lot of ground the past couple quarters and why they don't look to gain much in the coming months. Lower profit margins and quarterly estimates can be contributed to the rise in oil, chemicals, and steel prices last year. Now even with these prices at a really attractive level, tough economic times and a stronger dollar have continued to depress these earnings further. Demand is the driver of this sector. With lack of demand in a global recession, growth will continue to subside as manufacturing companies try to regain their footing.

Transportation remains a danger zone. I would advise to stay from auto companies and all those that depend on these companies for sales until some type of stability forms and fear starts to offset. Railroads are the only companies that should even be considered in this industry. However, with lack of demand these companies don't have too much to transport. The railroad's biggest shipment is coal and with Obama's go green campaign, where exactly will coal fit into the plans?
*At no time should airlines ever be owned.

Aerospace and Defense is a sector that had seen growth due to Afghanistan and Iraq. However, we must be cautious given that the Democrats have not been big supporters of the war and a pullout may be on the horizon. Lockheed Martin(LMT) is the largest supplier of military products. They have won numerous contracts from the Navy and Air Force. Should we pull out of Iraq, LMT should remain a decent growth prospect as their F-35 is scheduled to replace 8 different aircraft types.

Manufacturing has contracted over the last several months as the global recession has seemingly hit each up and coming economy. With a stronger dollar, products seem more expensive and have hit sales even harder. A deeply depressed housing market has not helped out either. This industry should be watched from the sideline as we wait for economies to strengthen and demand to increase.

Machinery saw significant growth with the rise in commodity prices last year. But the fall in demand and, in turn, prices have capped the growth on these stocks for the time being. As seems to be the consistent factor, low demand tied to contracting economies have depressed the outlook for these stocks. I like Caterpillar(CAT) as a top growth company as the BRIC nations continue to progress. Deere(DE) is the world's largest manufacturer of farm equipment and is fresh off a record setting year.

Construction is yet another industry with a depressed outlook for the year. Many think this industry turns around in the fourth quarter. I am not sure what will happen to this industry as the economy and credit will both have to improve to jumpstart construction spending and demand. I am not bullish on any of these companies yet. With severely low prices and some hefty dividends, it might be worth a wait for this to turn around. However, low prices do not always equal a bargain.

Conglomerates may be the most attractive companies in this sector as most have been able to manage their risk by diversification. Diversification does have a different definition for each investor. However, most of these companies still have a lot of exposure to industrials in general. I like United Technologies(UTX) and Teleflex(TFX)as both have solid businesses with great dividends. UTX is buying back shares reconfirm their trust in the company. TFX has acquired a cardiac care company to expand into the healthcare industry. Both, however, have significant reliance on their international exposure to keep up growth.

There are a few good companies that were not mentioned here. As always do your own homework and research before you just accept anyone's thoughts and ideas. This is a bearish sector until the global economy recovers. Weak demand and a strong dollar lowers earnings estimates. Be cautious in how you play this sector. Look for diversification and maybe lower international exposure.