Finder is committed to editorial independence. While we receive compensation when you click links to partners, they do not influence our content.
Investing in industrial stocks
A major sector that relies heavily on the economy and contains some of the world’s largest companies.
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 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 subsectors include:
- Aerospace and defense. Companies that manufacture civil or military aircraft and defense 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
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 minimize exposure.
A brief rundown of how to start investing:
- Find a brokerage. Explore different brokerage platforms and choose a firm that fits your financial needs.
- Apply for an account. You can open most brokerage accounts online. You’ll need to fund your account before you buy any stocks or ETFs.
- Pick your securities. Your platform should come with research tools to help you learn about the right stocks and ETFs for you.
- Place an order. When you’re ready, buy the security.
- Monitor your investments. Use your brokerage account to track your securities.
What stocks are in the industrial goods sector?Select a company to learn more about what they do and how their stock performs, including market capitalization, the price-to-earnings (P/E) ratio, price/earnings-to-growth (PEG) ratio and dividend yield. While this list includes a selection of the most well-known and popular stocks, it doesn't include every stock available.
What ETFs track the industrial sector?
Several popular ETFs that track the industrial sector are:
- Fidelity MSCI industrial ETF (FIDU)
- Industrial Select Sector SPDR ETF (XLI)
- Invesco S&P 500 Equal Weight industrial ETF (RGI)
- iShares Global industrial ETF (EXI)
- iShares Transportation Average ETF (IYT)
- iShares US Aerospace & Defense ETF (ITA)
- iShares US industrial ETF (IYJ)
- SPDR S&P Aerospace and Defense ETF (XAR)
- SPDR S&P Transportation ETF (XTN)
- Vanguard industrial ETF (VIS)
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. 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 US industrial stocks.
Compare stock trading platforms
Compare platforms to invest in stocks and ETFs.
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
More guides on Finder
These IPOs will be hot in 2021
Private-equity companies have about $1.6 trillion of uninvested capital to put into merger and acquisition activity. This bodes well for 2021’s IPO market.
5 smart ways to invest your stimulus check
If you don’t need your money right now, consider investing in an HSA, blue chip stocks and more.
The top 5 stocks that beat Bitcoin in 2020
The top 5 stocks that beat Bitcoin in 2020 and why
Investing in entertainment stocks
Benefits and risks to consider before you back the entertainment sector.
Investing in airline stocks
The airline industry saw a decade of gains shot down by COVID-19. When might they rise again?
Investing in cruise ship stocks
Cruise ship stocks are sailing through murky waters, but can they rise?
Investing in pharmaceutical stocks
Benefits and drawbacks to consider before you invest in pharma stocks.
Investing in car stocks
Top car stocks and ETFs that track the category.
Pros and cons to consider before you sign up for an account with Public.
Square Cash App investing review
Fees, features and feedback to consider before you invest through Square’s Cash App.
Ask an Expert