3 Diversified Operations Stocks to Gain on Promising Industry Trends

The Zacks Diversified Operations industry is poised for growth driven by strong demand in aerospace, defense, oil & gas, and commercial aviation, alongside infrastructure development and technological advancements. Despite facing headwinds from a contracting manufacturing sector (ISM PMI 49.1%) and persistent supply-chain issues, the industry holds a favorable Zacks Industry Rank #88, reflecting a positive earnings outlook with estimates up 23.5% for the current year. While the industry has underperformed the S&P 500 over the past year and trades at a lower forward P/E of 11.15x, 3M Company (MMM), ITT Inc. (ITT), and Star Equity Holdings, Inc. (STRR) are highlighted as key stocks positioned to capitalize on these opportunities.

Analysis

The Zacks Diversified Operations industry is positioned for growth, driven by robust demand in aerospace, defense, oil & gas, and commercial aviation sectors. Further tailwinds include increased infrastructure development, product innovation, and technological advancements, with companies digitizing operations for enhanced productivity and cost reduction. The industry holds a favorable Zacks Industry Rank #88, placing it in the top 36% of 243 industries, indicating strong prospects.

Despite these positive drivers, the industry faces significant headwinds from a contracting manufacturing sector, evidenced by the ISM Manufacturing PMI falling to 49.1% in September and new orders at 48.9%. Persistent supply-chain disruptions, particularly for electrical and electronic components, also pose challenges. However, aggregate earnings estimates for the current year have still increased by 23.5% over the past year, reflecting analyst confidence.

The industry has underperformed the S&P 500 over the past year, declining 6.7% against the S&P 500's 16.5% rise. Despite this, its current valuation appears attractive, trading at a forward P/E of 11.15X, significantly below the S&P 500's 23.29X and its own five-year median of 15.94X. This suggests a potential undervaluation relative to broader market and historical norms.

Individual companies like 3M (MMM) and ITT Inc. (ITT), both Zacks Rank #2 (Buy), have seen share price gains of 11.3% and 11.7% respectively over the past year, consistently beating earnings estimates. Star Equity Holdings (STRR), also a Zacks Rank #2, has shown a 17.9% rebound in the last six months and a substantial 154.5% increase in 2025 earnings estimates over 60 days, driven by its Building Solutions division and recent acquisitions.

Key Decisions for Investors

• Consider initiating or increasing exposure to the Diversified Operations industry, given its attractive valuation (11.15x forward P/E vs. S&P 500's 23.29x) and positive earnings outlook despite recent underperformance.
• Focus on companies with strong exposure to aerospace, defense, and infrastructure, as these sectors are identified as key growth drivers for the industry.
• Monitor economic indicators such as the ISM Manufacturing PMI and supply chain metrics closely, as persistent weakness in manufacturing and supply disruptions could temper industry growth.
• Evaluate individual stocks like 3M (MMM), ITT Inc. (ITT), and Star Equity Holdings (STRR) for potential investment, considering their positive earnings revisions, consistent estimate beats, and strategic growth drivers.