The Economic Recovery Will Drive These Industrial Stocks

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some industrial companies to your portfolio, the Guggenheim S&P 500 Equal Weight Industrials ETF could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The Guggenheim ETF's expense ratio -- its annual fee -- is a relatively low 0.50 %, and it recently yielded about 2.1%. The fund is fairly small, so if you're thinking of buying, beware of possibly large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.

This ETF has handily outperformed the world market over the past three and five years. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.

With a low turnover rate of 18 %, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.

Why industrials?
The industrials sector will see demand grow once the world's economies get back on track. While there are some signs that that is happening, some fear that it won't happen soon.

More than a handful of industrial companies had strong performances over the past year. Eaton , a power management company, gained 18%, profiting from a shift in focus from international projects to more U.S.-based ones. Management hasn't exactly been stoking the flames of confidence, though, with Eaton's CEO warning this past summer that the upcoming "fiscal cliff" has the company in "economic purgatory," and lowering near-term performance expectations. Eaton is growing via acquisition, too, recently gobbling up Cooper Industries for more than $11 billion. Eaton's inventories of heavy equipment have also started to shrink, which is promising. It yields about 2.7%.

Emerson Electric , up 17% and yielding 3%, has cut back its projections for the year as it fights sluggishness in Europe and pressure on profits from a strengthening dollar. Some analysts are lukewarm on it, but it sports a solid growth rate, a reasonable valuation, and a great dividend track record. It's also expanding its scope, serving marine vessels, for example, via an acquisition from Johnson Controls . Its peers have also been busy doing some heavy acquiring, and that might leave Emerson in a more nimble and opportunistic position.

Other companies didn't do as well last year, but could see their fortunes change in the coming years. Pitney Bowes , known for its postage-meter business, sank by 31% and recently yielded a whopping 12.6%. The company has been struggling with electronic communications replacing many mailed communications. Its revenue has been shrinking, but thanks to cost-cutting, its earnings haven't shrunk. It's involved in other less-threatened and higher-margin businesses as well, and has bulls hopeful about deals such as providing geocoding software to companies such as Facebook . Its single-digit P/E ratio is enticing, but consider its risks before jumping in.

Expediters International of Washington gained just 2%, though it's poised to profit from an uptick in international shipping as economies recover. It does what its name says -- expediting shipping by bundling shipments and optimizing logistical arrangements. Its revenue growth has been lumpy , and its 1.3% dividend is modest, but it has been hiking that payout significantly .

The big picture
Demand for industrial products and services isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.

The article The Economic Recovery Will Drive These Industrial Stocks originally appeared on Fool.com.

Selena Maranjian, whom you can follow on Twitter, owns shares of Emerson Electric. The Motley Fool recommends Emerson Electric and Facebook. The Motley Fool owns shares of Expeditors International of Washington and Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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