Momentum continues to build for the Trump-led "reshoring" of industrial production back to the U.S., Morgan Stanley analysts declared. The firm on Wednesday named Eaton Corp. and Rockwell Automation as its top stocks to play the reshoring theme. Eaton stock broke out on Thursday.
Besides Eaton and Rockwell, the Morgan Stanley analyst report named Hubbell, Trane Technologies, Fastenal and Emerson Electric as other top beneficiaries of U.S. reshoring activities.
Trump Ignited U.S. Reshoring 'Flame'
"The flame was first lit in 2018 as Trump tariffs kick-started boardroom conversations around global supply chains for the first time in 40 years and brought noticeable change," the firm's industrials analyst team led by Christopher Snyder wrote in an 87-page research note on Wednesday.
The report, coming ahead of the 2024 U.S. elections, pointed to several other factors driving the reshoring theme besides former president and presidential candidate Donald Trump.
The Covid-19 pandemic further spurred economic disruption by highlighting the costs of "rigid" global supply chains, the Morgan Stanley analysts said. As a result, many countries including the U.S. began a push to return manufacturing from countries like China to their own shores, a process commonly known as reshoring.
The Biden administration has also pushed reshoring via major legislation such as the CHIPS Act and Inflation Reduction Act, providing hefty carrots and sticks to set up chip plants, electric vehicle supply chains and more in the U.S.
Gen AI: New Tailwind For U.S. Industrial Companies
Now, a new structural tailwind is emerging. The latest gen AI (artificial intelligence) advancements are reducing U.S. manufacturing costs and thereby the benefits of using low-cost labor, the analysts said.
"We believe the U.S. is entering the early innings of re-industrialization, a multi-decade opportunity that we size at $10 trillion," they added.
All told, Morgan Stanley expects U.S. reshoring activities to boost growth for industrial companies. Eventually, a "more durable upcycle" in earnings and free cash flow should "provide rerating potential" for these stocks, they said.
IBD also thinks highly of Eaton stock and Hubbell, which earn Composite Ratings above 90 each. The IBD markets team thinks especially highly of Trane Technologies stock, which lands on the IBD 50 list of top growth stocks.
Reshoring Stocks
Eaton stock seized a 345.19 buy point in Thursday's stock market trading. The maker of electric power and control systems has jumped 44.5% this year to record highs. The IBD Stock Checkup tool shows Eaton averaged 25% earnings growth over the last three quarters, above the three-year rate of 18%.
Rockwell stock nudged lower on Thursday. Shares of the industrial automation company are testing the 200-day moving average after finding support at the 50-day line. But Rockwell is in a downturn going back to July 2023.
Hubbell stock is slightly extended from a recent consolidation. Trane Technologies stock hasn't had a proper base all year as it marches higher, but is in range of a three-weeks-tight pattern.
Fastenal stock raced above a 72.49 cup-with-handle buy point on Oct. 11 following earnings. Shares are moving toward a record high.
Emerson Electric stock is slightly below a cup-with-handle buy point.
Please follow Aparna Narayanan on X @IBD_Aparna for more coverage.
