Salient to Investors:

The S&P Supercomposite Machinery Index has risen 9.4 percent since July 17 versus a loss of 0.8 percent in the S&P 500 Index.

Robert McCarthy at Robert W. Baird said the rise in machinery stocks follows 5 months of underperformance by near 20 percent, and sees meaningful upside potential on signs of improvement at customers since the summer. The US accounts for as much as 50 percent of revenues, the euro area 20 percent to 25 percent, Asia 15 percent, and Latin America and emerging markets 10 percent.

Martin Leclerc at Barrack Yard Advisors likes machinery stocks for their long-term growth prospects on improving demand. Machinery suppliers are exposed to end-markets that will bolster revenue as the global economy also becomes more supportive of expansion. Leclerc said despite being a very cyclical group, many of these companies could be considered growth companies on a 3-yr average earnings-growth basis. Leclerc said most machinery stocks would get hammered in another slowdown, but they are well-positioned to take advantage of a manufacturing renaissance and energy-independence efforts in the US, and infrastructure building in emerging markets.

Jim Stellakis at Technical Alpha said machinery stocks have been stair-stepping up since the summer, and the bigger the rally, the more attention these shares will warrant, reinforcing the likelihood that the increase could continue and isn’t just emotionally driven.

Andy Kaplowitz at Barclays said global business confidence matters a lot for machinery suppliers. Investors should buy them when uncertainty is very high and valuations are inexpensive. These businesses are very global and their US operations remain strong, while their valuations are 10-12 times earnings versus 13 to 15 times in a more typical mid-cycle recovery.

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