MW This fund manager picked four industrial winners a year ago. Here are his latest picks.
By Philip van Doorn
Many catalysts can propel industrial activity in the U.S. over the next several years, including new accounting rules in President Donald Trump's big spending bill
Last July, we looked at the 11 sectors of the S&P 500 and saw that the industrial sector was expected by analysts to show the highest growth rates for revenue and profit from 2024 through 2027. It's time for another look at this sector and to see how the four stock picks in that article have fared.
For the article a year ago, Spenser Lerner, the head of multiasset solutions at Harbor Capital Advisors, and Bill Hench, who heads the small-cap team at First Eagle Investments, offered comments, with Hench also sharing four industrial stock selections. Both commented again during new interviews with MarketWatch for this update.
Sector projections, performance and valuations
Let us begin by moving everything up by a year. Here are the 11 sectors of the S&P 500 SPX, sorted by expected compound annual growth rates (CAGR) for revenue and earnings per share from 2025 through 2027.
Sector Two-year estimated sales CAGR through 2027 Two-year estimated EPS CAGR through 2027 12-month total return Forward P/E Forward P/E to 10-year average Information Technology 7.8% 15.7% 11.8% 29.5 140% Real Estate 6.7% 6.7% 8.3% 18.0 95% Industrials 6.6% 14.9% 23.5% 24.7 126% Communication Services 6.4% 11.0% 21.6% 19.8 104% Healthcare 6.1% 11.6% -7.3% 16.5 100% Consumer Discretionary 5.8% 14.7% 16.2% 29.3 106% Financials 5.4% 12.7% 26.1% 16.8 115% Utilities 4.9% 8.4% 19.6% 18.1 103% Materials 4.0% 15.0% 2.3% 20.8 120% Energy 3.8% 19.8% 0.8% 15.6 115% Consumer Staples 0.8% 7.4% 10.1% 22.6 113% S&P 500 5.4% 13.3% 13.1% 22.3 119% Source: FactSet
You might need to scroll the table to see all of the data.
The expected revenue CAGR is based on consensus estimates among analysts polled by FactSet. The consensus estimates are weighted by market capitalization and adjusted to match calendar years for companies whose fiscal reporting periods don't match the calendar.
All 11 sectors of the S&P 500 have had positive returns over the past year, with the industrial sector taking second place behind the financial sector. All returns in this article include reinvested dividends. The table also shows the sectors' forward price-to-earnings ratios relative to 10-year average levels. By this measure, 10 sectors and the full S&P 500 appear to be expensive, with the real-estate sector the exception.
The industrial sector is now in third place for expected revenue CAGR and ranks fourth for EPS CAGR.
According to Lerner, about half of the outperformance for the industrial sector over the past year, relative to the S&P 500, has reflected a soaring aerospace and defense industry, springing from the Israel/Iran conflict and President Donald Trump's renewed commitment to providing weapons to Ukraine as that country defends itself from Russia's invasion that began in February 2022. On top of those developments are the more recent agreements among NATO member countries to increase defense spending.
Boeing Co. (BA) "had been in a doom loop from operational and legal challenges" before the company settled with the Justice Department in May, Lerner said. He added that an increase in orders for Boeing's 737 Max had been a "tailwind" for aerospace contractors this year.
Another possible catalyst for Boeing, according to Lerner, is the company's use "as a bargaining chip" by Trump and Treasury Secretary Scott Bessent in trade negotiations with other countries.
Lerner said that some investors were beginning to believe Trump's tariff policies were "demand drivers" for U.S. industrial goods - an idea "that was not being considered much earlier than February of this year." He said Trump had talked about trillions of dollars worth of capital expenditure deals.
"Those investments will increase demand for goods and machinery over the next three-plus years. That is a good secular tailwind for capital goods companies that supply manufacturers," he said.
Digging further into the industrial sector, Lerner pointed to artificial intelligence. Uber Technologies Inc. (UBER) has benefited from "a lot of positivity around autonomous driving," including the ride-sharing company's agreement with Waymo to provide self-driving services in several cities, he said.
Hand-in-hand with the AI theme, Lerner expects a continuing expansion of demand for cooling machinery and other capital goods needed for constructing data centers for the next year or two.
Finally, the megabill that Trump signed on July 4 includes items "likely to spur investment in the economy starting in 2026," according to Lerner. The bill allows for an acceleration of depreciation for capital spending, and increases the amount of research and development spending that companies can expense immediately - rather than accounting for those expenses over five-year periods. Those new rules provide "a major tax incentive to spend now," he said.
How Bill Hench's four industrial stock picks fared
A year ago, Bill Hench of First Eagle Investments shared four industrial stock selections. Here is how they have performed since Friday, July 19, 2024, the last market close before that article was published:
Company Ticker Total Return from July 19, 2024, through July 14, 2025 Kratos Defense & Security Solutions Inc. KTOS 147% Carpenter Technology Corp. CRS 152% Modine Manufacturing Co. MOD -15% AAR Corp. AIR 1% Source: FactSet
Shares of Kratos Defense & Security Solutions Inc. $(KTOS)$ and Carpenter Technology Corp. $(CRS.UK)$ soared, while Modine Manufacturing Co. $(MOD.AU)$ was down 15% and AAR Corp. $(AIR.AU)$ was up slightly. Based on these returns, if you had invested $100 in each of the companies at the close on July 19 of last year, your value would now be $685.38, for a return of 71%.
Hench said the First Eagle Small Cap Opportunity Fund FESAX was still holding all except Modine as of June 30. The fund sold Modine's shares in "mid-October," he said. The stock closed at $129.25 on Oct. 15, up 21% from its close at $107.17 on July 19, 2024.
Hench named four more stock selections from the fund's holdings:
-- Commercial Metals Co. CMC makes rebar and other metal products used in construction. "This is one of the first times I hear a metal processor citing data-center [construction]," Hench said, referring to comments by Commercial Metals Chief Executive Peter Matt, who mentioned data centers during the company's earnings call on March 20, according to a transcript provided by FactSet. The stock trades at a low forward P/E of 12.1. "In small-cap land, people are still petrified about the recession we were supposed to have three months ago," Hench said. Analysts polled by FactSet expect the company to earn $3.56 a share during calendar 2025, increasing 24% to $4.42 in calendar 2026.
-- Wesco International Inc. WCC supplies various types of electrical equipment to industrial clients and provides related supply-chain services. Hench said this stock also appeared to be undervalued. It trades at a forward P/E of 13.6. Analysts expect the company to earn $13.14 a share this year, increasing 20% to $15.81 in 2026.
MW This fund manager picked four industrial winners a year ago. Here are his latest picks.
By Philip van Doorn
Many catalysts can propel industrial activity in the U.S. over the next several years, including new accounting rules in President Donald Trump's big spending bill
Last July, we looked at the 11 sectors of the S&P 500 and saw that the industrial sector was expected by analysts to show the highest growth rates for revenue and profit from 2024 through 2027. It's time for another look at this sector and to see how the four stock picks in that article have fared.
For the article a year ago, Spenser Lerner, the head of multiasset solutions at Harbor Capital Advisors, and Bill Hench, who heads the small-cap team at First Eagle Investments, offered comments, with Hench also sharing four industrial stock selections. Both commented again during new interviews with MarketWatch for this update.
Sector projections, performance and valuations
Let us begin by moving everything up by a year. Here are the 11 sectors of the S&P 500 SPX, sorted by expected compound annual growth rates (CAGR) for revenue and earnings per share from 2025 through 2027.
Sector Two-year estimated sales CAGR through 2027 Two-year estimated EPS CAGR through 2027 12-month total return Forward P/E Forward P/E to 10-year average
Information Technology 7.8% 15.7% 11.8% 29.5 140%
Real Estate 6.7% 6.7% 8.3% 18.0 95%
Industrials 6.6% 14.9% 23.5% 24.7 126%
Communication Services 6.4% 11.0% 21.6% 19.8 104%
Healthcare 6.1% 11.6% -7.3% 16.5 100%
Consumer Discretionary 5.8% 14.7% 16.2% 29.3 106%
Financials 5.4% 12.7% 26.1% 16.8 115%
Utilities 4.9% 8.4% 19.6% 18.1 103%
Materials 4.0% 15.0% 2.3% 20.8 120%
Energy 3.8% 19.8% 0.8% 15.6 115%
Consumer Staples 0.8% 7.4% 10.1% 22.6 113%
S&P 500 5.4% 13.3% 13.1% 22.3 119%
Source: FactSet
You might need to scroll the table to see all of the data.
The expected revenue CAGR is based on consensus estimates among analysts polled by FactSet. The consensus estimates are weighted by market capitalization and adjusted to match calendar years for companies whose fiscal reporting periods don't match the calendar.
All 11 sectors of the S&P 500 have had positive returns over the past year, with the industrial sector taking second place behind the financial sector. All returns in this article include reinvested dividends. The table also shows the sectors' forward price-to-earnings ratios relative to 10-year average levels. By this measure, 10 sectors and the full S&P 500 appear to be expensive, with the real-estate sector the exception.
The industrial sector is now in third place for expected revenue CAGR and ranks fourth for EPS CAGR.
According to Lerner, about half of the outperformance for the industrial sector over the past year, relative to the S&P 500, has reflected a soaring aerospace and defense industry, springing from the Israel/Iran conflict and President Donald Trump's renewed commitment to providing weapons to Ukraine as that country defends itself from Russia's invasion that began in February 2022. On top of those developments are the more recent agreements among NATO member countries to increase defense spending.
Boeing Co. (BA) "had been in a doom loop from operational and legal challenges" before the company settled with the Justice Department in May, Lerner said. He added that an increase in orders for Boeing's 737 Max had been a "tailwind" for aerospace contractors this year.
Another possible catalyst for Boeing, according to Lerner, is the company's use "as a bargaining chip" by Trump and Treasury Secretary Scott Bessent in trade negotiations with other countries.
Lerner said that some investors were beginning to believe Trump's tariff policies were "demand drivers" for U.S. industrial goods - an idea "that was not being considered much earlier than February of this year." He said Trump had talked about trillions of dollars worth of capital expenditure deals.
"Those investments will increase demand for goods and machinery over the next three-plus years. That is a good secular tailwind for capital goods companies that supply manufacturers," he said.
Digging further into the industrial sector, Lerner pointed to artificial intelligence. Uber Technologies Inc. (UBER) has benefited from "a lot of positivity around autonomous driving," including the ride-sharing company's agreement with Waymo to provide self-driving services in several cities, he said.
Hand-in-hand with the AI theme, Lerner expects a continuing expansion of demand for cooling machinery and other capital goods needed for constructing data centers for the next year or two.
Finally, the megabill that Trump signed on July 4 includes items "likely to spur investment in the economy starting in 2026," according to Lerner. The bill allows for an acceleration of depreciation for capital spending, and increases the amount of research and development spending that companies can expense immediately - rather than accounting for those expenses over five-year periods. Those new rules provide "a major tax incentive to spend now," he said.
How Bill Hench's four industrial stock picks fared
A year ago, Bill Hench of First Eagle Investments shared four industrial stock selections. Here is how they have performed since Friday, July 19, 2024, the last market close before that article was published:
Company Ticker Total Return from July 19, 2024, through July 14, 2025
Kratos Defense & Security Solutions Inc. KTOS 147%
Carpenter Technology Corp. CRS 152%
Modine Manufacturing Co. MOD -15%
AAR Corp. AIR 1%
Source: FactSet
Shares of Kratos Defense & Security Solutions Inc. (KTOS) and Carpenter Technology Corp. $(CRS.AU)$ soared, while Modine Manufacturing Co. (MOD) was down 15% and AAR Corp. $(AIR.NZ)$ was up slightly. Based on these returns, if you had invested $100 in each of the companies at the close on July 19 of last year, your value would now be $685.38, for a return of 71%.
Hench said the First Eagle Small Cap Opportunity Fund FESAX was still holding all except Modine as of June 30. The fund sold Modine's shares in "mid-October," he said. The stock closed at $129.25 on Oct. 15, up 21% from its close at $107.17 on July 19, 2024.
Hench named four more stock selections from the fund's holdings:
-- Commercial Metals Co. CMC makes rebar and other metal products used in construction. "This is one of the first times I hear a metal processor citing data-center [construction]," Hench said, referring to comments by Commercial Metals Chief Executive Peter Matt, who mentioned data centers during the company's earnings call on March 20, according to a transcript provided by FactSet. The stock trades at a low forward P/E of 12.1. "In small-cap land, people are still petrified about the recession we were supposed to have three months ago," Hench said. Analysts polled by FactSet expect the company to earn $3.56 a share during calendar 2025, increasing 24% to $4.42 in calendar 2026.
-- Wesco International Inc. WCC supplies various types of electrical equipment to industrial clients and provides related supply-chain services. Hench said this stock also appeared to be undervalued. It trades at a forward P/E of 13.6. Analysts expect the company to earn $13.14 a share this year, increasing 20% to $15.81 in 2026.
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MW This fund manager picked four industrial -2-
-- Thermon Group Holdings Inc. THR "wraps pipes and fixtures for companies in the chemical industry, refining - anyone working with heat," Hench said. Its largest industrial clients include Shell PLC SHEL Exxon Mobil Corp. XOM and Chevron Corp. CVX, he said. As with the semiconductor industry, cycles of economic strength will benefit Thermon, Hench said. "If there is a plus sign for GDP, those companies will do pretty well," he said. The consensus estimate is for Thermon's EPS to increase 11% from $1.86 in calendar 2025 to $2.08 in calendar 2026.
-- Advanced Energy Industries Inc. AEIS provides power conversion and control systems to industrial clients. "A good deal is related to semiconductor production," Hench said. AEIS is expected to earn $5.25 a share this year, with EPS increasing 20% to $6.31 in 2026.
Fund comparisons
Lerner co-manages the Harbor Multi-Asset Explorer ETF? MAPP. This is a difficult exchange-traded fund to categorize because it shifts in and out of various sectors and industry groups, with a goal of returning between 7% and 10% annually "while minimizing drawdown risk," according to Lerner. The fund was established in September 2023, so it doesn't yet have a Morningstar ranking. Morningstar places MAPP within its "U.S. Fund Global Moderately Aggressive Allocation," category, although Lerner said the category had varied because the fund's allocation to stocks could range from 10% to 85%.
This fund's annual expenses come to 0.85% of assets under management, which means an annual cost of $85 for every $10,000 invested.
Here are one-year returns through Monday for MAPP, two ETFs and two open-ended mutual funds that are actively managed and follow multiasset strategies. These are only examples within a space that includes scores of competing funds. The returns are net of expenses. If you see any funds of interest, you should do your own research to learn more about the funds' strategies and expenses.
Fund Ticker 1-year return through July 14 Harbor Multi-Asset Explorer ETF MAPP 10.2% SPDR SSgA Multi-Asset Real Return ETF RLY 7.5% iShares U.S. Thematic Rotation Active ETF THRO 12.9% BlackRock 60/40 Target Allocation Fund, Institutional BIGPX 8.4% T. Rowe Price Capital Appreciation Fund PRWCX 10.9% Source: FactSet
Hench co-manages the First Eagle Small Cap Opportunity Fund FESAX, which held 237 stocks as of June 30. The fund is ranked three stars (out of five) within Morningstar's "Small Value" category. Its net annual expense ratio is currently 1.26%, which makes for $126 annually for every $10,000 invested.
Here is how the fund has performed for one year, along with its three-year average return through Monday, compared with three other funds in the same Morningstar category and the SPDR S&P 600 Small Cap Value ETF SLYV, which tracks the S&P 600 Small Cap Value Index:
Fund or index Ticker 1-year return 3-year avg. return
First Eagle Small Cap Opportunity Fund Class A FESAX 1.7% 10.4%
Royce Small-Cap Value Fund - Investment Class RVVHX 2.3% 13.2%
Third Avenue Small-Cap Value Fund Investor Class TVSVX 7.8% 13.5%
Fidelity Small Cap Value Fund FCPVX 6.9% 11.3%
SPDR S&P 600 Small Cap Value ETF SLYV 4.1% 7.8%
Source: FactSet
Again, all returns are net of expenses, and this is not meant to be a representative sample. When measuring one-year returns, Morningstar has 495 funds in the same category.
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