Industrial Sector Is Saying, 'No Recession.' 3 Stocks to Consider. — Barrons.com

By Paul Vieira

Canada has agreed to purchase air-strike weaponry from Boeing and RTX as the U.S.'s northern neighbor ramps up military spending.

The U.S. Defense Department said the transaction, with a $2.68 billion price tag, would improve Canada's defense capability and strengthen its ability to contribute to continental security.

One of Prime Minister Mark Carney's initial moves upon winning power this year was to accelerate Canada's defense spending, which failed to meet requirements outlined by the North Atlantic Treaty Organization and triggered widespread criticism from senior U.S. lawmakers and officials.

A representative for Canada's Department of Defence didn't immediately respond to a request for comment.

The multibillion-dollar deal comes as the U.S. and Canada remain at an impasse in talks to resolve their tariff row. Carney's office said the prime minister is expected to briefly meet with President Trump on Friday in Washington, on the margins of the World Cup draw at the Kennedy Center.

Write to Paul Vieira at paul.vieira@wsj.com

Al Root

What's better for stocks than a cyclical upturn? A "supercycle."

One is coming for small and mid-capitalization industrial stocks in 2026, according to JPMorgan analyst Tomohiko Sano. He's identified several that can benefit from the whirlwind.

A supercycle doesn't have a specific definition like a bull or bear market. Essentially, the term means a sector or group of stocks that will see faster earnings growth than they have experienced in prior economic cycles. Higher growth typically translates into higher valuation ratios — and impressive stock performance.

It's about to happen for a bevy of U.S. manufacturing stocks, says Sano. Four things are creating the conditions: safety, data center spending, reshoring and automation, which he lumps together, and M&A.

Safety for Sano means keeping employees safe and productive. It isn't just about compliance, but a "strategic imperative that underpins margin resilience, stakeholder trust, and long-term competitive advantages," he writes.

Two attractive small and mid-capitalization industrial companies that fit the bill are nuclear safety firm Mirion and fire protection service provider APi Group.

Mirion has a $6.4 billion market value, and trades for about 42 times estimated earnings over the next 12 months. It is expected to grow earnings by about 20% on average for the next few years, and enjoys strong support on Wall Street. All eight analysts covering the stock rate share Buy. The average Buy-rating ratio for industrial stocks in the S&P 500 is roughly 55%.

There are more than 200 industrial stocks in the Russell 3000. The most valuable is GE Aerospace, worth more than $300 billion. Caterpillar is second, worth some $275 billion. The average market value is about $20 billion. Values of small- and mid-cap industrial stocks range from less than $1 billion to, perhaps, $40 billion.

APi has a $16 billion market value, trades for about 23 times earnings, and is expected to grow earnings by about 14% for the next few years. Ninety percent analysts covering shares rating them Buy.

Sano's second driver, the AI data center boom, needs little explanation. Spending by the likes of Amazon and Alphabet is driving revenue growth for industrial companies and power demand for utilities. Three beneficiaries are powertrain component suppliers Regal Rexnord and Gates Industrial, and infrastructure builder Valmont Industries.

Regal has a $9.5 billion market value, trades for about 13 times earnings, is expected to grow earnings by about 14% a year for the next couple of years, and 92% of analysts covering the stock rate shares Buy.

Gates has a $5.7 billion market value, trades for about 14 times earnings, is expected to grow earnings by about 13%, and has a Buy-rating ratio of 75%.

Valmont has an $8.1 billion market value, trades for about 19 times earnings, is expected to grow earnings by about 12%, and has a Buy-rating ratio of 67%.

Sano's reshoring and automation beneficiaries include motion-control technology provider Allient, machine-vision provider Cognex, and bearing maker Timken.

Allient has a market value under $1 billion, trades for about 22 times earnings, is expected to grow earnings by about 19% a year for the next few years. Half of the analysts covering shares rate them Buy.

Cognex has a $6.3 billion market value, trades for about 34 times earnings, is expected to grow earnings by about 20% for the next few years, and 61% of analysts covering the stock rate shares Buy.

Timken has a low Buy-rating ratio at 29%. But it trades for 13 times earnings and is expected to grow earnings by about 12% a year for the next few years. Its market cap is about $5.7 billion.

As for M&A, water heater maker A.O. Smith bought Leonard Valve in November. Contractor solutions provider CSW Industrials bought MARS Parts in October. Those deals can help drive synergies and higher earnings growth, says Sano.

Currently, A.O. Smith is expected to grow earnings by about 7% for the next couple of years. It trades for 16 times earnings, with 43% of analysts covering the stock rating shares Buy. Its market value is about $9.3 billion.

CSW is expected to grow earnings by about 11% a year for the next few years and trades for 25 times earnings. It lacks Wall Street support with only 17% of analysts rating shares Buy. Its market value is about $5 billion.

It isn't an exhaustive list of small and midsize industrial stocks. But it's a good place to start for anyone looking for portfolio exposure to big themes for the coming year.

Write to Al Root at allen.root@dowjones.com

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