Mega trends drove the market in 2021, and I don’t expect that to change in 2022.
As we wrap up the year, I want to look back at some of the sectors we’ve discussed in great detail over the last 12 months.
Let’s see what we can learn from sector performance in 2021 as we prepare our portfolios to crush the market in 2022.
Industrial Sector Had a Good Year
It was a solid year for industrial sector stocks.
The Industrial Select Sector SPDR (NYSE: XLI), a collection of the gritty industrial stocks in the S&P 500, is up about 18% since the first of the year.
That’s a solid gain for a collection of mature companies. The exchange-traded fund’s (ETF) largest holdings include Honeywell International Inc. (NYSE: HON), United Parcel Service Inc. (NYSE: UPS) and Union Pacific Corp. (NYSE: UNP). Each accounts for about 5% of the portfolio.
An 18% return isn’t bad. But our industrial plays within the Green Zone Fortunes model portfolio blew that return out of the water.
My readers are up 75% and 64% on two industrial stocks we recommended in Green Zone Fortunes near the end of 2020. And they’re up around 25% on another industrial stock recommendation we added over the summer… just as XLI was topping out and starting a long sideways grind.
ETFs Follow the Industrial Stock Trend
We got the macro theme right. Industrials were a no-brainer in 2021 for two big reasons:
- The largest infrastructure spending bill in decades is pumping billions of dollars into new projects.
- The private sector restructuring after two years of pandemic disruptions. (Meeting the surge of e-commerce demand is an example.)
Beyond the macro theme, we dug deeper, focusing on companies that ranked among the best in our Green Zone Ratings System. These companies also had an “x-factor” catalyst that will juice the stocks’ returns higher.
ETFs allow everyday retail investors to own a diversified basket of stocks. And XLI offers an easy way to invest in the industrial sector success without betting the farm on one company.
But you aren’t likely to enjoy market-crushing returns buying a sector index fund and hoping for the best. Let’s take a look at XLI’s biggest holdings to see why.
XLI’s Top Holdings Don’t Rate Well
Honeywell International rates a “Bearish” 39 in my proprietary Green Zone Ratings model. It rates average or below average in four out of the six major investment factors. We expect stocks rating as bearish in our model to underperform the market over the following year.
UPS rates better at 58. That’s still a “Neutral” rating, and neutral stocks are set to perform in line with the market over the next 12 months.
I could make a case for UPS as a “buy and hold forever” stock given its tie back to e-commerce. If you believe that Amazon.com and its peers will continue to dominate, then it makes sense that parcel and logistics companies will do well by proxy. But this isn’t an “industrial” play, and it isn’t how I want to play the rise of e-commerce.
I’ve written a lot in recent months about how the supply-chain bottlenecks create opportunities for transportation and logistics companies. Yet a rail operator like Union Pacific isn’t quite the exposure I’m looking for. The bigger and more pressing opportunities are in shipping, ports and even last-mile delivery. On top of that, Union Pacific rates a mediocre 52 in our Green Zone Rating System.
These aren’t bad stocks, of course. But why would you want to tie up precious capital here we can help you find better stocks with more profit potential?
How to Crush the Market With Industrials in 2022
My team and I continue to see fantastic opportunities in the industrials sector, particularly in green energy and in logistics.
This month in Green Zone Fortunes, I recommend a company that has the potential to quite literally change the world.
It offers a solution to a problem that has vexed engineers for years: renewable energy storage.
How do you effectively store and distribute solar and wind energy when the weather doesn’t cooperate?
My December stock recommendation is working on a solution that I predict will make its investors a lot of money.
To learn about my newest recommendation, click here to join my premium research service Green Zone Fortunes now. The December issue of the newsletter will hit subscribers’ inboxes this week.
After a successful 2021, I can’t wait to help you invest in the market’s top trends in 2022.
To good profits,
Chief Investment Strategist