The industrials sector is the backbone of the economy. It performs three main functions:
- Manufacturing and distributing capital goods: This includes building products and machinery, as well as providing construction and engineering services.
- Providing commercial and professional services: This includes environmental and facility services, along with human resources and employment services.
- Providing transportation services: This includes operating an airline or railway.
What are industrial stocks?
What are industrial stocks?
Industrial companies operate in several subsectors of the economy, providing products and services related to:
- Aerospace and defense
- Air freight and logistics
- Commercial and professional services and supplies
- Industrial machinery and electrical equipment
- Construction equipment and building supplies
- Transportation, including cars, airlines, and railways
- Waste management
The industrial industry is one of three economic segments. It's also known as the secondary sector. The other two economic segments are the primary sector, encompassing agriculture, fishing, and mining, and the service sector, which includes hospitality, consultancy, and nursing.
Best industrial stocks
Best industrial stocks to buy in 2025
These industrial stocks offer some of the sector’s best durable long-term investments:
| Company | Ticker | Focus |
|---|---|---|
| Waste Management | (NYSE:WM) | Waste disposal, recycling, and renewable energy. |
| FedEx | (NYSE:FDX) | A global shipping company. |
| Lockheed Martin | (NYSE:LMT) | A large defense contractor. |
| Caterpillar | (NYSE:CAT) | A leading global manufacturer of construction equipment. |
| GE Vernova | (NYSE:GEV) | A company focused on manufacturing products and providing services for the power, wind, and electrification sectors. |
1. Waste Management
Waste Management, or WM, is one of the leading waste management companies in North America. It provides waste collection, transfer, and disposal services, as well as recycling and resource recovery. The company is also a leading developer and operator of landfill gas-to-energy facilities.
It provides its services to residential, commercial, industrial, and municipal customers. With demand for waste hauling relatively stable, its business is more recession-resistant than other industrial companies.
Over the years, WM has invested to automate its collection truck fleet and convert it to run on cleaner, cheaper natural gas. Moves like these have allowed WM to consistently generate free cash flow, giving it the funds to make acquisitions. In late 2024, it acquired Stericycle to expand its comprehensive environmental solutions into the growing healthcare sector.
The company also routinely returns money to shareholders via dividends and share repurchases while maintaining an investment-grade balance sheet. This strategy of expanding and also rewarding shareholders has enabled Waste Management to create significant shareholder value over the years.
2. Fedex
FedEx provides customers with transportation, e-commerce, and business services. The company operates a fleet of aircraft and vehicles, logistics facilities, and retail stores that help facilitate the shipment of millions of packages daily. It also offers businesses a host of other logistics and e-commerce services that help to distribute their products to customers.
E-commerce
FedEx produces lots of free cash flow, which allows the company to pay a competitive and growing dividend. It can also repay debt to strengthen its balance sheet and make investments to expand its operations.
FedEx’s strong cash flow also enables the company to invest in innovation. The shipping company is testing autonomous vehicles and delivery services. It’s also making sustainability-related investments. FedEx aims to become carbon-neutral by 2040 while generating compelling investment returns for its shareholders.
3. Lockheed Martin
Lockheed Martin is a leading global security and aerospace company. It researches, designs, develops, and manufactures advanced technology systems, products, and services, primarily for government customers. The defense contractor has four main business segments: aeronautics, missiles and fire control, rotary and mission systems, and space.
The company invests billions of dollars annually on research and development (R&D) to advance the latest defense technology. It routinely complements its internal R&D program with acquisitions. In late 2024, the company acquired Terran Orbital to enhance its space capabilities.
The defense contractor should continue growing in the coming years. Recent wars in Ukraine and the Middle East have increased global defense spending. That trend will likely continue as geopolitical tensions remain high.
4. Caterpillar
Caterpillar is a leading global manufacturer of construction and mining equipment, off-highway diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives. The company has three operating segments: construction industries, resource industries, and energy and transportation. It also provides financing and related services.
Caterpillar is working toward making more sustainable equipment. It’s collaborating with companies in the rail, energy, mining, and technology sectors on developing new technologies with lower carbon emissions. For example, it’s working on both battery- and hydrogen-powered locomotives. It’s also developing zero-emission haul trucks and equipment for the mining industry. The focus on sustainability will be a major growth driver for Caterpillar in the coming years as the global economy continues making progress on reducing carbon emissions.
Another major growth driver for Caterpillar is the increasing investment on infrastructure in the coming years. The U.S. is one of many countries that has boosted its spending on projects to maintain and expand highway and rail systems, bridges, and other infrastructure. The increased spending should drive more demand for construction equipment.
5. GE Vernova
GE Vernova is an energy equipment manufacturing and services company. It formed in 2024 after the once-mighty industrial giant GE completed its breakup. GE Vernova is the former GE Power and GE Renewable Energy businesses.
The company has three business segments:
- Power: It provides electricity generation solutions like natural gas turbines to customers to produce power.
- Wind: The company is a leader in producing wind turbines and other components to produce wind energy.
- Electrification: It developed solutions to help modernize and digitize the electric grid.
GE Vernova's products currently produce about 25% of the world's electricity. It manufactures turbines (natural gas and wind), positioning it to grow as demand for lower carbon energy rises. It also services its turbines for customers, providing the company with very stable cash flow.
Identifying the best companies
How to identify the best industrial companies
The strongest industrial companies have diversified operations, low operating costs, and investment-grade credit ratings. Diversification, a low cost structure, and access to affordable debt are important because of the cyclicality of the industrials sector. Economic downturns directly reduce the demand for industrial goods and services.
Industrial companies also need access to affordable debt because their operations are often very capital-intensive. Most industrial companies need to borrow money to buy new capital equipment and build new manufacturing facilities. Another benefit of a low-cost structure is less exposure to rising cost pressures in inflationary environments.
While a company's financial performance is always relevant for investors, companies in the industrial sector need to maintain particularly strong financial positions. Prospective investors should pay close attention to how specific industrial companies fare in times of crisis.
Related investing topics
Should you invest?
Should you buy industrial company stocks?
The industrial sector's cyclical nature makes industrial company stocks better suited for risk-tolerant investors. As we’ve seen many times over the years, economic conditions can significantly change almost overnight. But in a booming economy, industrial company stocks can generate impressive returns for investors. Buy-and-hold investors who are comfortable with volatility can often earn strong returns by owning shares of high-quality industrial companies for the long term.
