The industrial sector of the TSX climbed by more than 35 per cent last year, but a growing body of evidence suggests that there may still be runway for companies in this group.
In a recent note, Brian Belski, chief investment strategist at the Bank of Montreal, wrote that industrials could be lifted by a "manufacturing renaissance" in North America this year.
Industrials are made up of a diverse group of companies focused on capital goods manufacturing, distribution and transportation, as well as construction, among other things. Businesses in this category range from Russel Metals Inc. to Ritchie Bros. Auctioneers.
A stronger outlook for manufacturing in Canada was supported Thursday by the RBC Canadian Manufacturing Purchasing Managers' Index (PMI). The index measures new orders, output and employment across Canadian manufacturing. Many of these companies performed well last year.
Although the index fell to 53.5, in December a four month low and a drop from the 55.3 reading in November, the overall trend over the past nine months has been strong, according to RBC. (A reading above 50 indicates that manufacturing activity is increasing.)
"Our forecast assumes that this stronger U.S. activity will be sustained through 2014, which is expected to help support the Canadian economy through both strengthening exports and business investment," RBC said in a statement, adding that business confidence in manufacturing has also improved.
A lower Canadian dollar may also benefit this group of companies.
In his note, Mr. Belski highlighted rail companies such as Canadian National Railway, as well as conglomerates and select machinery firms. He also tipped Bombardier Inc. as one to watch – the jet maker recently received a $2.2-billion (U.S.) aircraft order.