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5 Must-Buy Manufacturing Stocks That Outperformed S&P 500 YTD
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Manufacturing activity has been expanding over the past 15 months (per the data available till August), which indicates a strong rebound from the contraction suffered in March to May last year due the COVID-19 pandemic that impacted demand and disrupted its supply chain. The sector regained its footing in mid-2020 as economies started reopening and businesses resumed operations. It has been gaining momentum ever since, with new orders and production on a roll.
Per the Federal Reserve, U.S industrial production has returned to pre-pandemic levels. In August, U.S. industrial production increased 0.4% in August, which was 0.3% above February 2020 — the last month of normalcy before the pandemic crippled industrial output. Manufacturing production advanced 0.2% despite plant closures due to Hurricane Ida and was 1% above its pre-pandemic level.
Per the U.S. Census Bureau, new orders for manufactured durable goods in August has increased 24.7% year over year. Orders for capital goods (excluding aircraft), which is a closely watched indicator for business spending plans, shot up 16.4% on a year-on-year basis in August and is 18% above pre-pandemic level. Business spending on equipment is on track for another quarter of robust growth. Manufacturers are benefiting from higher demand for goods, both domestic and external, in spite of supply chain issues, rising commodities prices, ongoing scarcity of critical basic materials and labor shortage that is plaguing the sector at large.
Farm equipment makers have been gaining from the improving farm income dynamics, which has persuaded farmers to resume investing in new equipment and replacing their aging fleets. Increasing demand from residential construction, backed by the rising need for more work-at-home spaces and record-low mortgage rates, has been acting as a tailwind for construction equipment manufacturers. The companies that provide packaging solutions are gaining from the e-commerce boom and the solid demand for essential products amid the pandemic. Resumption of spending in the mining industry on the back of improving commodity prices and the industry’s increasing preference for automation to increase efficiency boosted demand for mining equipment manufacturers. On top of this, increased government spending to rebuild roads, bridges and waterways will translate into fresh demand for construction materials and equipment, infrastructure engineering and design companies, and ones making machinery parts.
Per our latest Earnings Trends report, the Industrial Products sector is expected to deliver growth of 40.2% in earnings in 2021 — a major turnaround from the COVID-19 induced drop of 14.7% in earnings in 2020. In the third quarter, the sector is expected to log an earnings growth of 25.8% followed by 13.1% in the final quarter of the year.
We put our Sectors (all 16 of them) into two groups: the top half (i.e., sectors with the best average Zacks Rank) and the bottom half (the sectors with the worst average Zacks Rank). Over the last 10 years, using a one week rebalance, the top half beat the bottom half by more than twice as much. (To learn more visit: About Zacks Sector Rank)
The industrial products sector, with a Zacks Sector Rank #7, remains in the top half.
Thus, we suggest you to stay invested in the sector to reap the benefits of robust prospects ahead. We have handpicked five industrial stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a VGM Score of A or B. We believe this combination offers the best investment opportunities. These stocks have also outperformed the S&P year to date, which is shown in the chart below. Moreover, these stocks are anticipated to carry the momentum forward backed by their earnings growth projections. You can see the complete list of today’s Zacks #1 Rank stocks here.
Image Source: Zacks Investment Research
Our Picks
Terex Corporation (TEX - Free Report) : The company’s backlog has been improving over the past three quarters and soared 199% year over year to $2,305 million in second-quarter 2021. Bookings in the quarter increased a whopping 218% year over year. Both of its segments, Aerial Work Platforms and Materials Processing, have been witnessing strong demand. The company’s cost management efforts has also led to significant savings. All of these factors have been instrumental in the stock’s gain of 28.4% year to date, compared with the S&P 500’s rally of 19.9%. The company is progressing well on its “Execute, Innovate, Grow" strategy that will drive long-term growth. In sync with this, Terex is investing in innovative products, digital innovation, expansion of manufacturing facilities and acquisitions.
The Zacks Consensus Estimate for the Norwalk, CT-based company for the ongoing fiscal indicates year-over-year growth of 2,208%. The concensus mark has gone up 19% in the past 90 days. The manufacturer of aerial work platforms, materials processing machinery and cranes has a trailing four-quarter earnings surprise of 307%, on average. The stock currently has a Zacks Rank #1 and a VGM Score of A.
AGCO Corporation (AGCO - Free Report) : The company has been gaining on favorable market demand, cost saving initiatives and positive market response to its technology-focused products. Cumulatively, this has led to the stock gaining 23.6% year to date compared with the S&P 500’s rally of 19.9%. Healthy farm fundamentals is expected to support the company’s top-line performance. Replacement demand for aged fleet of larger equipment is also expected to drive growth. AGCO continues to invest in products, premium technology and smart farming solutions to improve distribution and enhance digital capabilities in order to drive margins and strengthen product offerings.
The Zacks Consensus Estimate for the Duluth, GA- based company’s earnings for the ongoing year has moved up 10% in the past 90 days and indicates year-over-year growth of around 71%. The agricultural equipment manufacturer has a trailing four-quarter earnings surprise of 65%, on average. The company has an estimated long-term earnings growth rate of 19%. The stock currently has a Zacks Rank #2 and a VGM Score of A.
Deere & Company (DE - Free Report) : The company has been benefiting from higher demand stemming from improving farm income and the need to replace an ageing fleet. Strength in residential construction is favoring its top-line. Its focus on launching products with advanced technologies and features also continues to provide a competitive edge. It is assessing cost structure by reviewing organization efficiency and footprint assessment, which in turn will help improve margins. The company manufactures and distributes road building equipment through its wholly-owned subsidiaries of the Wirtgen Group. Thus, it stands to benefit from the increased spending on infrastructure. Owing to the upbeat prospects, its shares have gained 31% year to date, compared with the S&P 500’s rally of 19.9%.
The Zacks Consensus Estimate for the Moline, IL-based agricultural equipment producer’s earnings for the ongoing fiscal suggests year-over-year growth of 117.5%. The consensus mark has moved north by 6% in the past 90 days. The company has a trailing four-quarter earnings surprise of 48%, on average. The company has an estimated long-term earnings growth rate of 21.2%. This Zacks #2 Ranked company has a VGM Score of B.
John Bean Technologies Corporation (JBT - Free Report) : The company is poised-well to benefit from improvement in order levels in both of its segments and cost reduction actions. The FoodTech segment is positioned well on high demand for packaged food purchases and the recent recovery in foodservice. The AeroTech segment will benefit from increased infrastructure spending and pickup in passenger air travel. The stock has gained 37% so far this year, compared with the S&P 500’s growth of 19.9%. Its Elevate plan will aid margin expansion. Focus on acquisitions and developing innovative products will drive growth for the company as well.
The Zacks Consensus Estimate for company’s ongoing-year earnings has moved up 5% over the past 90 days. The consensus mark for the current year indicates year-over-year growth of 20.6%. The company has a trailing four-quarter earnings surprise of 16.8%, on average. The Chicago, IL-based company has an estimated long-term earnings growth rate of 15.8%. It currently has a Zacks Rank #2 and a VGM Score of B.
O-I Glass, Inc. (OI - Free Report) : The company's ongoing efforts to improve productivity and efficiency, and its cost-control measures are aiding margins. Its ongoing divestiture program, investment in incremental capacity and acquisitions, and product innovation will also stoke growth. Being the largest manufacturer of glass containers in the world, O-I Glass is poised-well to gain from growing demand for glass as the healthy, premium and sustainable option for food and beverage. Backed by this momentum, the company’s shares have gained 21.5% so far this year, compared with the S&P 500’s 19.9% growth.
The Zacks Consensus Estimate for the Perrysburg, OH-based earnings for the ongoing fiscal indicates year-over-year improvement of 40.2%. The estimates have gone up 3% in the past 90 days. The company has a trailing four-quarter earnings surprise of 26%, on average. The company has an estimated long-term earnings growth rate of 21.7%. This Zacks #2 Ranked company has a VGM Score of A.
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5 Must-Buy Manufacturing Stocks That Outperformed S&P 500 YTD
Manufacturing activity has been expanding over the past 15 months (per the data available till August), which indicates a strong rebound from the contraction suffered in March to May last year due the COVID-19 pandemic that impacted demand and disrupted its supply chain. The sector regained its footing in mid-2020 as economies started reopening and businesses resumed operations. It has been gaining momentum ever since, with new orders and production on a roll.
Per the Federal Reserve, U.S industrial production has returned to pre-pandemic levels. In August, U.S. industrial production increased 0.4% in August, which was 0.3% above February 2020 — the last month of normalcy before the pandemic crippled industrial output. Manufacturing production advanced 0.2% despite plant closures due to Hurricane Ida and was 1% above its pre-pandemic level.
Per the U.S. Census Bureau, new orders for manufactured durable goods in August has increased 24.7% year over year. Orders for capital goods (excluding aircraft), which is a closely watched indicator for business spending plans, shot up 16.4% on a year-on-year basis in August and is 18% above pre-pandemic level. Business spending on equipment is on track for another quarter of robust growth. Manufacturers are benefiting from higher demand for goods, both domestic and external, in spite of supply chain issues, rising commodities prices, ongoing scarcity of critical basic materials and labor shortage that is plaguing the sector at large.
Farm equipment makers have been gaining from the improving farm income dynamics, which has persuaded farmers to resume investing in new equipment and replacing their aging fleets. Increasing demand from residential construction, backed by the rising need for more work-at-home spaces and record-low mortgage rates, has been acting as a tailwind for construction equipment manufacturers. The companies that provide packaging solutions are gaining from the e-commerce boom and the solid demand for essential products amid the pandemic. Resumption of spending in the mining industry on the back of improving commodity prices and the industry’s increasing preference for automation to increase efficiency boosted demand for mining equipment manufacturers. On top of this, increased government spending to rebuild roads, bridges and waterways will translate into fresh demand for construction materials and equipment, infrastructure engineering and design companies, and ones making machinery parts.
Per our latest Earnings Trends report, the Industrial Products sector is expected to deliver growth of 40.2% in earnings in 2021 — a major turnaround from the COVID-19 induced drop of 14.7% in earnings in 2020. In the third quarter, the sector is expected to log an earnings growth of 25.8% followed by 13.1% in the final quarter of the year.
We put our Sectors (all 16 of them) into two groups: the top half (i.e., sectors with the best average Zacks Rank) and the bottom half (the sectors with the worst average Zacks Rank). Over the last 10 years, using a one week rebalance, the top half beat the bottom half by more than twice as much. (To learn more visit: About Zacks Sector Rank)
The industrial products sector, with a Zacks Sector Rank #7, remains in the top half.
Thus, we suggest you to stay invested in the sector to reap the benefits of robust prospects ahead. We have handpicked five industrial stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a VGM Score of A or B. We believe this combination offers the best investment opportunities. These stocks have also outperformed the S&P year to date, which is shown in the chart below. Moreover, these stocks are anticipated to carry the momentum forward backed by their earnings growth projections. You can see the complete list of today’s Zacks #1 Rank stocks here.
Our Picks
Terex Corporation (TEX - Free Report) : The company’s backlog has been improving over the past three quarters and soared 199% year over year to $2,305 million in second-quarter 2021. Bookings in the quarter increased a whopping 218% year over year. Both of its segments, Aerial Work Platforms and Materials Processing, have been witnessing strong demand. The company’s cost management efforts has also led to significant savings. All of these factors have been instrumental in the stock’s gain of 28.4% year to date, compared with the S&P 500’s rally of 19.9%. The company is progressing well on its “Execute, Innovate, Grow" strategy that will drive long-term growth. In sync with this, Terex is investing in innovative products, digital innovation, expansion of manufacturing facilities and acquisitions.
The Zacks Consensus Estimate for the Norwalk, CT-based company for the ongoing fiscal indicates year-over-year growth of 2,208%. The concensus mark has gone up 19% in the past 90 days. The manufacturer of aerial work platforms, materials processing machinery and cranes has a trailing four-quarter earnings surprise of 307%, on average. The stock currently has a Zacks Rank #1 and a VGM Score of A.
AGCO Corporation (AGCO - Free Report) : The company has been gaining on favorable market demand, cost saving initiatives and positive market response to its technology-focused products. Cumulatively, this has led to the stock gaining 23.6% year to date compared with the S&P 500’s rally of 19.9%. Healthy farm fundamentals is expected to support the company’s top-line performance. Replacement demand for aged fleet of larger equipment is also expected to drive growth. AGCO continues to invest in products, premium technology and smart farming solutions to improve distribution and enhance digital capabilities in order to drive margins and strengthen product offerings.
The Zacks Consensus Estimate for the Duluth, GA- based company’s earnings for the ongoing year has moved up 10% in the past 90 days and indicates year-over-year growth of around 71%. The agricultural equipment manufacturer has a trailing four-quarter earnings surprise of 65%, on average. The company has an estimated long-term earnings growth rate of 19%. The stock currently has a Zacks Rank #2 and a VGM Score of A.
Deere & Company (DE - Free Report) : The company has been benefiting from higher demand stemming from improving farm income and the need to replace an ageing fleet. Strength in residential construction is favoring its top-line. Its focus on launching products with advanced technologies and features also continues to provide a competitive edge. It is assessing cost structure by reviewing organization efficiency and footprint assessment, which in turn will help improve margins. The company manufactures and distributes road building equipment through its wholly-owned subsidiaries of the Wirtgen Group. Thus, it stands to benefit from the increased spending on infrastructure. Owing to the upbeat prospects, its shares have gained 31% year to date, compared with the S&P 500’s rally of 19.9%.
The Zacks Consensus Estimate for the Moline, IL-based agricultural equipment producer’s earnings for the ongoing fiscal suggests year-over-year growth of 117.5%. The consensus mark has moved north by 6% in the past 90 days. The company has a trailing four-quarter earnings surprise of 48%, on average. The company has an estimated long-term earnings growth rate of 21.2%. This Zacks #2 Ranked company has a VGM Score of B.
John Bean Technologies Corporation (JBT - Free Report) : The company is poised-well to benefit from improvement in order levels in both of its segments and cost reduction actions. The FoodTech segment is positioned well on high demand for packaged food purchases and the recent recovery in foodservice. The AeroTech segment will benefit from increased infrastructure spending and pickup in passenger air travel. The stock has gained 37% so far this year, compared with the S&P 500’s growth of 19.9%. Its Elevate plan will aid margin expansion. Focus on acquisitions and developing innovative products will drive growth for the company as well.
The Zacks Consensus Estimate for company’s ongoing-year earnings has moved up 5% over the past 90 days. The consensus mark for the current year indicates year-over-year growth of 20.6%. The company has a trailing four-quarter earnings surprise of 16.8%, on average. The Chicago, IL-based company has an estimated long-term earnings growth rate of 15.8%. It currently has a Zacks Rank #2 and a VGM Score of B.
O-I Glass, Inc. (OI - Free Report) : The company's ongoing efforts to improve productivity and efficiency, and its cost-control measures are aiding margins. Its ongoing divestiture program, investment in incremental capacity and acquisitions, and product innovation will also stoke growth. Being the largest manufacturer of glass containers in the world, O-I Glass is poised-well to gain from growing demand for glass as the healthy, premium and sustainable option for food and beverage. Backed by this momentum, the company’s shares have gained 21.5% so far this year, compared with the S&P 500’s 19.9% growth.
The Zacks Consensus Estimate for the Perrysburg, OH-based earnings for the ongoing fiscal indicates year-over-year improvement of 40.2%. The estimates have gone up 3% in the past 90 days. The company has a trailing four-quarter earnings surprise of 26%, on average. The company has an estimated long-term earnings growth rate of 21.7%. This Zacks #2 Ranked company has a VGM Score of A.