Jeremy Grantham is one of those legendary investors who has crossed the Rubicon and is now almost as well known for his support of research into climate change as he is for running his asset management firm Grantham, Mayo, & van Otterloo. The British investor is always highly vocal on big-picture issues like the environment and asset class valuations, so I thought it would be interesting to see what stocks his firm has been buying in an uncertain economic environment…
Seven stocks Jeremy Grantham bought
Before diving into the stocks, it’s worth noting that the size of the fund is in the ballpark of $14 billion, so even the largest position by value, 3M (NYSE:MMM) at $290 million, only constitutes around 2% of the total portfolio. Meanwhile, one of the smaller holdings in the portfolio, Federal Signal (NYSE:FSS), is arguably more significant as Grantham’s position constitutes around 1% of the market cap of the stock, compared with just 0.3% of 3M’s.
That said, no one invests in stocks because they are hoping to lose money, so all the buys are relevant. Here are seven interesting industrial stocks worth noting in Grantham’s portfolio and how those positions changed in the most recent quarter.
| Company | Industry | Market Cap | Shares Holding | Current Price | Current Value | Action |
|---|---|---|---|---|---|---|
| 3M | Multi-industry industrial | $98.1 billion | 1,697,284 | $170.54 | $289.5 million | Added 45,349 shares |
| United Technologies (NYSE:UTX) | Industrial conglomerate | $128.7 billion | 898,926 | $149.11 | $134.0 million | Added 20,982 |
| Honeywell International (NYSE:HON) | Industrial conglomerate | $128.5 billion | 735,817 | $179.80 | $132.3 million | Added 19,800 shares |
| Federal Signal | Infrastructure maintenance machinery for municipalities and industry | $2 billion | 585,407 | $32.95 | $19.3 million | Added 206,464 shares |
| Applied Materials (NASDAQ:AMAT) | Semiconductor materials | $57.6 billion | 132,557 | $62.35 | $8.3 million | New Position |
| PACCAR (NASDAQ:PCAR) | Trucks | $27.7 billion | 66,762 | $80.03 | $5.3 million | New Position |
| Aptiv PLC (NYSE:APTV) | Automotive components | $23.6 billion | 25,681 | $92.32 | $2.4 million | New Position |
DATA SOURCE: GRANTHAM, MAYO, & VAN OTTERLOO SEC FILINGS.
The cyclical comeback stories
The three stocks that immediately grab your attention are Applied Materials, PACCAR, and Aptiv. It’s been a pretty grim year in the semiconductor sector in terms of operations — Applied Materials just reported a 13% decline in its fiscal full-year 2019 net sales — but it’s been a great year for semiconductor stock prices as the market has bought into the idea that the trough in the industry has passed — something recently argued by Siemens CEO Joe Kaeser. Grantham’s purchase of Applied Materials could be taken as another vote of confidence in an industry that is traditionally a good early bellwether of the economy.
Trucking is also a highly cyclical industry. And the sector is arguably looking like a good value right now due to being oversold on expectations of a sharp drop in demand in 2020 after a few years of strong growth. But some leading commentators are talking about a bounce in demand in 2021, and history suggests that truck sales tend to overshoot and undershoot industrial production. In other words, if you think that U.S. industrial growth will be solid in 2021 and onward, then there’s a strong case for buying trucking stocks like PACCAR.
US HEAVY TRUCK SALES DATA BY YCHARTS.
In a similar vein, the automotive-supplier stocks have been sold off due to a combination of falling production, the General Motors strike, and concerns over the impact of the trade conflict. That said, valuations across the sector are looking attractive. And if global sales/production could start to stabilize in 2020 — it surely will at some point — then buying stocks like Aptiv, as Grantham did, could make sense.
APTV PE RATIO (FORWARD) DATA BY YCHARTS.
Grantham’s additional purchases of the three mega-cap stocks came…
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