Investing in industrial stocks

Companies like General Electric and American Airlines are part of the industrial sector. But these stocks are linked to politics and the economy, so they can be volatile. Weigh the benefits and drawbacks of investing in industrial stocks to find out if they might be a good fit for your investment portfolio.

What are industrial stocks?

The industrial sector is one of 11 sectors of the stock market that include companies that produce goods for industrial and commercial use, such as in construction or manufacturing.

These businesses play a critical role in the economy by supporting other industries. They supply the industrial tools, machinery and equipment that are used to produce consumer goods and services.

What industries are included in this sector?

Industrial stocks cover many different industries. A few popular sub-sectors include:

• Aerospace and defence. Companies that manufacture civil or military aircraft and defence products.
• Construction and engineering. Those involved in the nonresidential building industry.
• Electrical equipment. Producers of electrical components and equipment.
• Machinery industry. These companies manufacture and sell industrial equipment and machinery to other companies, such as tractors for agricultural use.
• Transportation infrastructure. This industry covers airport operations and companies that manage roads, tunnels, rail tracks and marine ports.

How to invest in the industrial sector in Australia

Invest in the industrial sector by purchasing individual stocks or exchange-traded funds (ETFs). By choosing your own stocks, you buy shares of a company and ultimately have more control over your investments. That comes with its fair share of risk.

You can also choose the ETF route, which gives you a basket of industrial stocks to help minimise exposure.

A brief rundown of how to start investing in Australia:

1. Find a brokerage. Explore different brokerage platforms in Australia and choose a firm that fits your financial needs.
2. Apply for an account. You can open most brokerage accounts in Australia online. You’ll need to fund your account before you buy any stocks or ETFs.
3. Pick your securities. Your platform should come with research tools to help you learn about the right stocks and ETFs for you.
4. Place an order. When you’re ready, buy the security.
5. Monitor your investments. Use your brokerage account to track your securities.

ASX industrial stocks

The largest industrial stocks on the Australian Securities Exchange include Worley Limited (ASX: WOR), Cleanaway Waste Management Limited (ASX: CWY) and Lendlease Group (ASX: LLC).

The best-performing industrial stocks on the ASX in 2024 as of 15 October 2024 are Superloop Limited (ASX: SLC), up 169.40%, and Southern Cross Electrical Engineering LTD (ASX: SXE), up 125.99%.¹

What ETFs track the industrial sector?

Several popular ETFs that track the industrial sector are:

How is the industrial sector performing?

The graph below tracks the performance of the Industrial Select Sector SPDR ETF (XLI). Tracking ETF performance is one way to gauge how the sector as a whole is doing.

Why invest in the industrial sector?

Industrial stocks are susceptible to economic cycles. When the economy is doing well, the industrial sector thrives and may even outperform the market. For example, as the US recovered from the Great Recession in 2009, the S&P 500 Index returned 15.1% in 2010, compared to the S&P 500 industrial Index of 26.7%.

The industrial sector can also see a boost when the economy is just coming out of a recession. Economic growth and a rise in employment and profits can promote business confidence and outlook. That could mean new building projects and machinery purchases.

What unique risks does the industrial sector face?

The industrial sector is deeply connected to the global economy and the international political climate. Some risks that are unique to industrial stocks include:

• Tariffs. In the midst of geopolitical unrest and trade wars, tariffs push the cost of goods up. Higher prices hurt consumers and can lead to fewer sales and cuts in production — slowing the sector down.
• Low demand. During a weak economy, the need for industrial goods and services also declines. Less demand can directly impact industrial stocks’ profit and performance.
• Global economy. Australian investors also need to watch the economies of key countries, like China. For example, about 6% to 10% of US industrials are tied to China’s economy, with some big names like General Motors (GM) and 3M (MMM). A slowdown abroad can affect a large portion of industrial stocks.

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Product	Price per trade	Standard brokerage for US shares	Inactivity fee	Asset class	International
eToro	US$2	US$2	US$10 per month if there’s been no log-in for 12 months	ASX shares, Global shares, US shares, ETFs	Yes	CFD service. Capital at risk. Trade stocks, commodities and currencies from the one account and get access to social trading.	Go to siteMore info Compare	loading Fetching your data...
Moomoo Share Trading Exclusive	US$0.99	US$0.99	$0	ASX shares, Global shares, Options trading, US shares, ETFs	Yes	Finder exclusive: Unlock up to AUD$4,000 and US$4,000 in $0 brokerage over 60 days. T&Cs apply. Trade US, Asian and CHESS-sponsored ASX stocks and get access to social trading.	Go to siteMore info Compare	loading Fetching your data...
CMC Invest Finder Award	$0	US$0	$0	ASX shares, Global shares, Options trading, US shares, ETFs	Yes	Trade over 45,000 shares and ETFs from Australia and 15 major global markets. Plus, buy Aussie shares or ETFs for $0 brokerage up to $1,000 (First buy order of each security, each day - excludes margin loan settled trades).	Go to siteMore info Compare	loading Fetching your data...
Tiger Brokers Finder AwardExclusive	US$2	US$2	$0	ASX shares, Global shares, Options trading, US shares, ETFs	Yes	Finder exclusive: Get 4 brokerage-free trades and pay no FX fees on the first $2,000 you exchange each month + get an $80 cash voucher when you deposit up to $2,000. T&Cs apply. Trade US, Asian and CHESS-sponsored ASX stocks and US options.	Go to siteMore info Compare	loading Fetching your data...
Superhero share trading Exclusive	$2	US$2	$0	ASX shares, US shares, ETFs	Yes	Sign up with code ‘finder25’ and get US$10 of Nvidia stock when you fund your account with $100 or more within 30 days. T&Cs apply. Invest from just $10 into Australian and US stocks and ETFs and set up recurring trades through Superhero’s auto-invest feature.	Go to siteMore info Compare	loading Fetching your data...

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Important: The standard brokerage fee displayed is the trade cost for new customers to purchase $1,000 of either Australian or US shares. Where a platform charges different fees for both US and Australian shares we show the lower of the two. Where both CHESS sponsored and custodian shares are offered, we display the cheapest option.

Bottom line

The industrial sector could be a good option if you’ve got a pulse on global politics and have a strong understanding of the economic cycle, but there are unique risks to consider. When you’re ready to start investing, be sure to find the right online brokerage platform for your financial goals.

Frequently asked questions

• Is the industrial sector cyclical?

  Yes. Industrial stocks tend to do well when the economy is strong and nosedive when the economy is weak.

• Do industrial stocks have good dividend yields?

  No, the industrial sector generally has below-average dividend yields when compared to the rest of the market. For example, the Invesco S&P 500 Equal-Weight industrial ETF (RGI) in June 2020 has a 1.55% dividend yield versus the S&P 500 Index’s 1.96%.

• Does an economic downturn affect all industrial stocks the same way?

  No. The industrial sector has its hand in several different industry cookie jars. Each industry performs differently during an economic decline. For instance, in the Great Recession of 2008, construction took a harder hit than trucking services.