By Jacob Sonenshine

Industrial companies like Caterpillar and Rockwell Automation looked promising this earnings season. Their stocks rose after results -- and they're examples of the perfect industrials to own.

These are just more hints that the sector looks attractive.

While the average S&P 500 stock dropped after reporting earnings this season, industrial sector stocks rose about 0.3% on average the trading day after reporting financial results, according to Evercore. Industrials' share price reactions to financial reports rank third among the index's 11 sectors.

That shows the sector isn't exorbitantly expensive -- unlike some S&P 500 stocks -- and that higher-than-expected profits can still drive the stocks higher. The valuations of these companies don't seem to reflect the larger stream of future profits that companies like Caterpillar and other manufacturers are demonstrating they can produce.

But industrials -- which include equipment and parts manufacturers for all sorts of new projects, infrastructure service providers, transporters, and airlines -- are showing they're still in the midst of telling their growth stories.

Industrials' sales, in aggregate, surpassed analysts' forecasts by 2%, according to Evercore. Earnings per share beat estimates by 16% -- marking the largest beat out of all sectors -- as the larger-than-expected revenue helped drive fatter-than-forecast profit margins.

Overall, sales for the quarter grew 6.6% in aggregate, while earnings per share grew 16%, as margins were stable enough. Many of these companies -- which are fairly large and generating consistent free cash flow -- repurchased shares, boosting earnings.

That's generally the type of income statement analysts expect for the sector over the coming coming few years, according to FactSet. Several ongoing trends are helping industrials grow above the rate of the broader economy.

For starters, companies are moving operations into the U.S. from overseas where tariffs and other global complications can prove costly. This trend, called "onshoring," should mean U.S. manufacturers and industrial service providers will receive more business to build new plants and properties.

Elsewhere, the big software companies' data center buildouts are sparking more demand for all sorts of equipment and construction. Separately, the rising need for clean energy projects -- in part to power AI data centers -- is another tailwind for industrial demand. Industrial automation, where companies sometimes pay higher prices to own more efficient manufacturing equipment, is another growth area.

This growth story -- and the higher profits that should result -- can push the Industrial Select Sector SPDR exchange-traded fund higher over the coming year or so. That's especially true since the fund's share price has consistently seen buyers step in to support it every time it dips to $150, give or take, since July. At $153 right now, it remains on its larger uptrend since late 2022, and yet it's only a few dollars above the $150 support area. That means investors still have time to buy before it rips above its record high of $155.

However, for investors who want to avoid buying exposure to airlines, which aren't benefiting from any discernible longer-term growth trend, could look for specific names within the industrials fund.

The best ones are those that aren't airlines, have business exposure to one of the longer-term growth trends, beat both sales and earnings estimates in the third quarter, and saw their stocks rise as a result. Some examples that meet those criteria -- and might be worth a buy -- are our recent stock pick Quanta Services, Caterpillar, Honeywell, Rockwell Automation, Johnson Controls International, RTX Corp., and Parker-Hannifin.

Write to Jacob Sonenshine at jacob.sonenshine@barrons.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.

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November 11, 2025 13:22 ET (18:22 GMT)

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