Rate Hikes Are Back. Here Are 3 Industrial Stocks Built to Win Anyway
Key Points
When faced with rising costs, companies generally raise prices and focus on cost-cutting.
Automation can help companies reduce their operating costs.
Rockwell Automation, Emerson, and Honeywell Technologies are all automation experts.
The Federal Reserve appears to have embarked on a cycle of rising interest rates. Bond yields have risen dramatically in anticipation of those hikes. Higher interest rates and bond yields increase interest expenses for companies and add to the inflationary pressures that have already been crimping profit margins.
In an effort to protect margins, companies have two basic options: raise prices and cut costs. Normally, both are employed at once. On the cost-cutting side, automation can help improve efficiency. And three major industrial companies that focus on automation are Rockwell Automation (NYSE: ROK), Emerson (NYSE: EMR), and Honeywell Technologies (NASDAQ: HON). Here's a quick look at how each one is winning despite rising interest rates.
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1) Rockwell Automation
Rockwell Automation has a $50 billion market cap and a long history of helping companies automate their operations. It has three divisions: Intelligent devices, software & control, and lifecycle services. Intelligent devices makes automation machinery, such as material-handling and sensing products. Software & control makes the software that works with automation equipment. And the lifecycle services division offers consulting services around automation, from remote monitoring to cybersecurity. It is a one-stop shop for companies seeking to automate their operations.
The company reported organic sales growth of 10% in the fiscal third quarter of 2026, with adjusted earnings rising 40%. In the quarter, the company highlighted strong demand from key areas such as semiconductors, data centers, E-commerce, and warehouse automation, two of which are directly tied to the rapid growth of the artificial intelligence (AI) sector.
The one problem with Rockwell Automation is its price, as it is often afforded a premium valuation. The stock's price-to-sales and price-to-earnings ratios are above their five-year averages. Value investors probably won't be interested, but growth investors should still consider a deep dive.
2) Emerson
In recent years, Emerson exited the climate control and consumer segments to focus on automation. Today, it offers a broad range of automation products, including valves, tools, and software. With a $90 billion market cap, it is one of the largest players in the automation space.
In the fiscal third quarter of 2026, underlying sales rose 6%, with adjusted earnings up 13%. The company raised its full-year guidance, highlighting continued strong demand. On the demand front, management called out the United States, India, Japan, and Southeast Asia as strong points. The company's sales to the semiconductor sector rose 70% year over year, again leaning into the AI sector's growth.
Like Rockwell Automation, Emerson's P/S and P/E ratios are above their five-year averages. However, given the investment going into North American manufacturing and, more specifically, AI, growth investors may want to do a deep dive.
3) Honeywell Technologies
With a market cap of around $60 billion, Honeywell Technologies falls between Rockwell Automation and Emerson. It recently completed the spin-off of its aerospace business, Honeywell Aerospace (NASDAQ: HONA), allowing Honeywell Technologies, the name it adopted following the spin-off, to focus on its automation operations. Two key areas for the business are industrial automation and building automation, which allows property owners to control their assets from security to heating.
Honeywell Technologies' most recent earnings results still include the aerospace business. However, the Honeywell Technologies business, when broken out separately, benefited from 4% organic sales growth. Orders rose 16%, pushing the stand-alone business's backlog up to $20 billion. It looks like Honeywell Technologies is off to a good start.
Because of the recent spin-off of the aerospace business, it is difficult to place a valuation on Honeywell Technologies at this time. However, given the strong demand for automation, it is likely to be more interesting to growth investors than value investors.
Automation experts help companies save money
Bringing this back to the core theme, companies are facing rising costs from inflation and higher interest expenses. They can only raise prices so much before customers push back, which means cost-cutting must be part of the equation as they seek to protect their margins. That, along with other major trends (AI and the reindustrialization of the United States), will help drive demand for automation experts like Rockwell Automation, Emerson, and Honeywell Technologies. And, perhaps, for years to come.
Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Emerson Electric, Honeywell Aerospace, and Honeywell Technologies. The Motley Fool recommends Rockwell Automation. The Motley Fool has a disclosure policy.