U.S. Manufacturing Stocks: A Resilient Haven in Uncertain Times

The U.S. manufacturing sector is often seen as a barometer of economic health, yet today it faces a paradox: even as the Federal Reserve's prolonged rate hikes and contracting PMI data signal caution, select industrials are thriving. Honeywell International (HON), Raytheon Technologies (RTX), and Hillenbrand (HI) stand out as exemplars of resilience, offering investors a mix of defensive stability, cash flow discipline, and exposure to secular growth trends. These stocks are mispriced relative to their fundamentals, making them compelling buys as markets rotate out of overvalued tech sectors.

The Case for Manufacturing Resilience

The U.S. manufacturing PMI has dipped below 50 for four consecutive months, signaling contraction. Yet this broad-based metric obscures sector-specific opportunities. Defense, infrastructure, and automation—sectors where HON, RTX, and HI excel—are proving less cyclical. Defense spending, for instance, is set to grow at a 4% CAGR through 2027, fueled by bipartisan support for modernizing the military. Meanwhile, infrastructure investment, including clean energy and smart manufacturing, is being turbocharged by federal subsidies and corporate ESG commitments.

Honeywell International (HON): A Diversified Powerhouse

Honeywell's Q2 2025 results highlight its ability to navigate headwinds. Sales rose 8% to $9.8 billion, driven by robust performance in Aerospace Technologies (+14%) and Building Automation (+19%). While Industrial Automation lagged due to European softness, the company maintainedAdjusted EPS guidance at $10.20–$10.50, a 5-cent increase from prior expectations. The $346 million in free cash flow and $1.9 billion in share repurchases underscore its capital discipline.

Honeywell's strategic moves—such as the $2.2 billion Sundyne acquisition and its plan to spin off Automation and Aerospace into standalone firms by 2026—position it to capitalize on automation and decarbonization trends. With a 3.2% dividend yield and a P/E of 18.5 versus the sector average of 21, it's attractively priced.

Raytheon Technologies (RTX): Defense's Anchor in Volatile Times

RTX's Q1 2025 results were a masterclass in execution. Sales rose 5% to $20.3 billion, with commercial aftermarket growth surging 21% and defense programs like F-35 and Patriot missiles driving profitability. Its $217 billion backlog—nearly half tied to defense—acts as a “moat” against macro uncertainty.

CEO Chris Calio's focus on margin expansion is paying off: segment margins rose across all three divisions, with Collins Aerospace hitting 17% and Pratt & Whitney improving to 8%. RTX's 2025 guidance ($6.00–$6.15 EPS) assumes organic growth of 4–6%, achievable even in a slowing economy. With a dividend yield of 1.8% and a P/E of 16.7, RTX is a buy for investors seeking both growth and stability.

Hillenbrand (HI): A Hidden Gem in Industrial Diversification

Hillenbrand's Q2 results defied expectations, with revenue rising 11% to $1.12 billion. Its Process Equipment segment (serving chemical and energy markets) grew 10%, while Funeral and Cremation Services expanded 12%, benefiting from demographic trends. The company's $0.59 per-share dividend (yielding 2.1%) is backed by a fortress balance sheet ($1.1 billion in cash) and free cash flow of $183 million.

HI's valuation is compelling: it trades at 14.2x forward earnings, below its five-year average of 16.5x. Its exposure to infrastructure (via its Coperion and Macawber brands) and its ability to scale costs in cyclical downturns make it a rare “recession-resistant” industrial pick.

Why Now? Mispricing and a Tech Rotation

The market's focus on tech and growth stocks has left industrials overlooked. The S&P 500 Industrials sector trades at a 20% discount to its 10-year average P/E, despite stronger balance sheets and dividend payouts. Meanwhile, the Fed's pivot to rate cuts—expected to begin in Q4 2025—will lower borrowing costs, easing pressure on capital projects and boosting demand for HON and RTX's aerospace and infrastructure solutions.

Investors rotating out of overvalued tech names should consider these three stocks as proxies for the “new manufacturing economy”: one defined by automation, defense modernization, and infrastructure rebuilds.

Investment Recommendation

• Buy HON at $160–170: Target $190 by year-end, with upside from spin-off catalysts.
• Add RTX at $160–170: Long-term runway to $200+ as defense budgets grow.
• Accumulate HI at $55–60: Near-term $70 target, with dividend safety as a buffer.

These stocks offer a rare combination of income, growth, and resilience—qualities in short supply in today's volatile markets.

In a world where macro risks dominate headlines, HON, RTX, and HI are the industrials investors should own. Their pricing discounts don't reflect their true staying power.