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

The article argues that U.S. industrial activity is improving, citing a six-year high in April industrial production and ISM manufacturing territory remaining positive. It highlights Deere's view that fiscal 2026 may mark the bottom of the current cycle with mid-single-digit equipment sales growth, while also favoring WM and Illinois Tool Works as beneficiaries of stronger economic activity. Overall tone is constructive on industrial cyclicals, but the piece is primarily commentary rather than new market-moving data.

Analysis

The setup is less about a broad cyclical rebound and more about capital spending re-accelerating in the parts of the economy where replacement demand was deferred the longest. That matters because the first leg of a cyclical turn typically shows up in orders and backlog before it shows up in margins, so the market is likely to underwrite earnings too late if it waits for clean prints. Deere looks like the highest beta expression of that dynamic, but the real edge may be in second-order beneficiaries with shorter decision cycles and lower ticket sizes.

WM is the defensive way to express the same thesis: more industrial activity and domestic production means more throughput, more hauling, and more landfill pricing power, while the scarcity of permitted disposal capacity acts like a local monopoly. Unlike equipment makers, its upside is less dependent on farmer or manufacturer confidence and more on volume plus pricing discipline, which makes it a better downside hedge if the macro improvement stalls. ITW sits in the middle—its diversified industrial exposure and asset-light model should let it compound earlier in an upcycle because customers can justify smaller, incremental capex projects before they commit to major fleet upgrades.

The contrarian miss is that investors may be treating this as a “soft landing” story when it may actually be a delayed inventory and capex replacement cycle. If industrial activity keeps improving for just 2-3 quarters, the earnings revisions in these names can inflect faster than consensus expects, especially because operating leverage is still underappreciated after recent caution. The main risk is that higher rates or a commodity pullback freeze replacement spending again; that would hurt DE first, while WM and ITW should hold up better due to recurring revenue characteristics and pricing power.

Key Decisions for Investors

• Long ITW vs. short DE for a 3-6 month relative-value pair: ITW has earlier-cycle, lower-ticket industrial exposure and less earnings volatility; DE has more macro sensitivity and higher downside if farm income softens again.
• Buy WM on pullbacks and treat it as a defensive industrial compounder over 12 months: the setup offers mid-single-digit organic growth with pricing power and lower cyclicality than the market’s AI-heavy leadership.
• Initiate a staged long DE position only if order commentary stabilizes for two consecutive quarters; use a 6-9 month horizon and size for higher volatility, since this is a cycle turn trade rather than a quality compounder.
• For bullish exposure to an industrial capex re-acceleration, favor ITW calls or call spreads 6-12 months out: you want upside participation if spending improves, but with limited premium at risk if the turn is delayed.
• If macro data rolls over, rotate out of DE first and keep WM as a core hold; the asymmetry is better because waste volumes and landfill pricing are more resilient than farm-equipment replacement demand.