Short-cycle names have done pretty well of late in the market, and Eaton’s (ETN) nearly 25% share price move since my last write-up has kept it a bit ahead of industrials in general, though not to the same extent as Parker-Hannifin (PH) and a few other short-cycle names. In any case, I believe there’s more to the Eaton story than just a short-cycle recovery in 2021 and an eventual, longer term, recovery in markets like non-resi construction, aerospace, and oil/gas. Eaton is leveraged not only to data center growth and utility upgrades, but also an increased focus on building efficiency and possible reshoring.
Eaton’s performance fits with my earlier call of it as a “borderline buy” where I leaned positive mostly because of the near-term drivers I saw. I’d say that’s still largely true. There aren’t many out-and-out bargains in high-quality industrials anymore, but I like Eaton’s leverage to electrification, as well as some self-help on margins. With a prospective return on par with other high-quality industrials, but a better “story” in my opinion, I think this is still a name to consider if you must buy into what I think is a pricey sector.
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