3 Industrial Stocks to Buy Before the Next Wave of Spending Hits

The article argues that rising U.S. industrial activity and steadier farm profits could support a cyclical recovery in Deere, WM, and Illinois Tool Works. Deere cited February Q1 calls suggesting 2026 may mark the bottom of its cycle, while WM posted $25.2 billion in revenue last year, up 14%, and $3.0 billion in net income. ITW is highlighted for its long-term strategy and expected steady single-digit revenue growth, with shares still down 17% from their mid-February peak.

Analysis

The setup is less about a broad manufacturing supercycle and more about a late-cycle capex re-acceleration after prolonged underinvestment. That matters because the first beneficiaries are typically the firms with short product cycles and high aftermarket exposure: ITW should see the cleanest operating leverage, while DE is more rate- and commodity-sensitive and will likely lag until farm balance sheets and dealer inventories both normalize. WM is the most defensive of the three, but it also has the best embedded pricing power if industrial activity and consumer volumes keep improving, since landfill scarcity and collection density create a structural margin floor.

Second-order effects favor suppliers and service providers tied to maintenance, replacement, and throughput rather than greenfield expansion. If industrial output keeps firming, the upside in capital goods is likely to show up first in order books, then in margins 1-2 quarters later as capacity utilization rises; that sequencing argues for getting positioned before consensus revisions catch up. The flip side is that a stronger economy can also raise input costs and labor pressure, which is a more acute risk for DE than ITW because agriculture is more exposed to commodity volatility and funding costs.

The contrarian miss is that investors may be treating this as an all-clear signal, when it is really a “better than feared” regime. For DE, the market likely needs one more clean quarter of dealer destocking and guidance stability before the stock can re-rate; until then it is a traded turnaround, not a fundamental compounding story. For ITW, the market may be underestimating how much of the 2030-style transformation already provides downside support even if near-term organic growth remains mid-single digit.

WM is the quietest compounder here: waste volumes are lagged to GDP, so if the economy is inflecting, earnings acceleration can arrive after investors have moved on to more cyclical names. That makes WM attractive as a lower-beta way to express the industrial rebound while avoiding the highest earnings volatility. The main reversal risk across the group is a growth scare or sticky rates that delay replacement demand for another 2-3 quarters.

Key Decisions for Investors

• Long ITW vs. XLI for 6-12 months: favor a high-quality industrial compounder with pricing discipline over the broader industrial basket; target 10-15% relative outperformance if capex revisions broaden.
• Buy WM on any 3-5% pullback over the next 2-4 weeks: use it as a defensive industrial proxy with durable pricing power; expected upside is lower beta but higher certainty, with downside capped by scarcity economics.
• Trade DE as a tactical cyclical, not a core hold: initiate only after the next earnings/guidance reset or a clear improvement in dealer inventories; upside can be 15%+ on cycle bottoming, but stop if 2026 replacement demand slips again.
• Pair long ITW / short DE for the next 1-2 quarters: captures the industrial upturn while isolating the less rate- and commodity-sensitive winner against the more macro-dependent laggard.
• Consider WM Jan-2026 calls on a vol dip: cleaner way to play a steady industrial recovery with limited earnings downside; risk/reward is attractive if waste volumes and pricing both remain firm.