Industrial Stocks Xylem and Badger Meter: Perfectly Priced Amid Tariff Uncertainty

Xylem Inc. and Badger Meter are industrial stocks sensitive to tariffs, making them highly volatile. Despite this, they are priced to perfection, with Xylem trading at a forward P/E of 18.4 and Badger Meter trading at a forward P/E of 17.4. Both stocks have strong fundamentals, with Xylem generating 15% annual revenue growth and Badger Meter boasting a 10-year revenue growth CAGR of 7%.

The first-quarter 2025 earnings season concluded with solid results despite economic and trade policy uncertainty, with 78% of S&P 500 companies exceeding earnings per share estimates [1]. However, shifting trade policies and persistent tariff threats have created uncertainty for businesses, particularly in the industrial sector. Two industrial stocks, Xylem Inc. and Badger Meter, have shown resilience despite being sensitive to tariffs.

Xylem Inc. and Badger Meter are priced to perfection, trading at forward P/E ratios of 18.4 and 17.4, respectively. Despite their sensitivity to tariffs, both companies have strong fundamentals. Xylem generated 15% annual revenue growth, while Badger Meter boasts a 10-year revenue growth CAGR of 7% [1].

The tariff impact on industrials was not as large as feared, with most companies operating local-for-local manufacturing models and supply chains already shifted from the first Trump administration [1]. However, the automotive sector remains an exception, with major manufacturers like GM and Ford reporting significant impacts [1].

Xylem Inc. and Badger Meter are taking proactive measures to mitigate tariff impacts. Xylem is leveraging its scale to negotiate better terms and find alternative suppliers, while Badger Meter is evaluating price increases and pausing or pushing out projects and capital expenditure decisions [1].

The uncertainty around tariffs has slowed some types of market activity in the financials sector, including M&A activity and commercial banking activity [1]. However, the tech sector remains resilient, with companies like Apple showing remarkable supply chain agility by moving iPhone assembly to India [1].

While the industrial sector faces challenges, companies like Xylem Inc. and Badger Meter are navigating the uncertainty with strong fundamentals and proactive measures. The key will be how quickly tariff policies stabilize and how well these companies can adapt to the changing landscape.

References:
[1] https://www.janushenderson.com/en-us/investor/article/research-sector-update-tariff-insights-from-earnings-season/