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Industrials Set to Gain as Trade War Fears Ease: 5 Picks
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Industrials emerged as the leading gainer on May 21 as stocks hit their highest level in two months. The immediate trigger for gains was a significant decline in trade tensions between the United States and China. Comments from the U.S. Treasury Secretary helped to reassure investors that negotiations between the two countries are proceeding smoothly.
Industrial companies are heavily dependent on international markets such as China. Additionally, tariffs on steel and aluminum imports, especially from China would lead to a significant increase in input costs. This is why the reduction in trade tensions is likely to benefit industrial stocks. With the global economic outlook remaining strong, investing in industrials looks like a smart option.
Mnuchin Eases Trade War Fears
Speaking to Fox News on May 20, Treasury Secretary Steven Mnuchin said that the United States was “putting the trade war on hold.” Mnuchin added that the tariffs on China would be held back as the two countries negotiate an agreement. The major objective of such a negotiation would be to reduce the massive trade deficit that the United States has with China.
Speaking to CNBC on Monday, Mnuchin reiterated his stance on tariffs stating that that the two sides had “made very meaningful progress, and now it is up to both of us to ensure we can implement it.” Mnuchin’s comments boosted markets on Monday with the S&P 500 touching its highest level since the middle of March.
Successful Trade Negotiations to Aid Industrials
The leading gainer among the S&P 500’s 11 sectors was the Industrial Select Sector SPDR (XLI) which gained 1.5% at the close. Incidentally, the XLI has been trailing the S&P 500 year to date as well as over the past one month. The XLI has increased 1.2% since the third week of April versus the S&P 500’s gain of 2.4% over the same period.
Surprisingly, industrials lag their sector counterparts despite a stellar first-quarter earnings performance. Trade tensions between the United States and China were one of the major reasons for industrials’ poor price performance.
If implemented, Trump’s decision to impose tariffs on steel and aluminum imports would significantly increase input costs. Further, industrial companies are heavily dependent on international markets such as China.
Further, at the start of trade negotiations, China’s state media had claimed that the country would adopt a tough stance. However, recent events have dispelled such concerns and industrials seem slated to gain in the days ahead.
Our Choices
Industrials emerged as the biggest gainer as markets surged on the easing of trade tensions between the United States and China. Industrial companies will now have a little less to worry about. This is because the imposition of trade tariffs would raise input costs and shut out a major market for such firms.
Additionally, the global economic outlook remains bright, which means that adding industrials to your portfolio could be a profitable option. However, picking winning stocks may be difficult.
This is where our VGM Score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score.
We have narrowed down our search to the following stocks based on a good Zacks Rank and VGM Score.
Caterpillar Inc. (CAT - Free Report) is the world’s leading manufacturer of construction and mining equipment, diesel and natural gas engines and industrial gas turbines.
Caterpillar has a VGM Score of A. The company has expected earnings growth of 55.8% for the current year. The Zacks Consensus Estimate for the current year has improved by 16.3% over the last 30 days. The stock has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Sonoco Products Co. (SON - Free Report) is a global manufacturer of consumer and industrial packaging products.
Sonoco Products has a Zacks Rank #2 (Buy) and a VGM Score of A. The company has expected earnings growth of 18% for the current year. The Zacks Consensus Estimate for the current year has improved by 2.5% over the last 30 days.
Nordson Corporation (NDSN - Free Report) is one of the leading manufacturers and distributors of products and systems designed to dispense, apply and control adhesives, coatings, polymers, sealants, biomaterials and other fluids.
Nordson has a Zacks Rank #2 and a VGM Score of A. The company has expected earnings growth of 18% for the current year. The Zacks Consensus Estimate for the current year has improved by 0.1% over the last 30 days.
Donaldson Company, Inc. (DCI - Free Report) is engaged in manufacturing and selling of filtration systems and replacement parts across the world.
Donaldson has a Zacks Rank #2 and a VGM Score of B. The company has expected earnings growth of 17.4% for the current year. The Zacks Consensus Estimate for the current year has improved by 0.2% over the last 30 days.
Zebra Technologies Corporation (ZBRA - Free Report) is a designer, manufacturer and seller of a variety of automatic identification and data capture (AIDC) products on a global basis.
Zebra Technologies has a Zacks Rank #2 and a VGM Score of B. The company has expected earnings growth of 26.7% for the current year. The Zacks Consensus Estimate for the current year has improved by 2.9% over the last 30 days.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
Image: Bigstock
Industrials Set to Gain as Trade War Fears Ease: 5 Picks
Industrials emerged as the leading gainer on May 21 as stocks hit their highest level in two months. The immediate trigger for gains was a significant decline in trade tensions between the United States and China. Comments from the U.S. Treasury Secretary helped to reassure investors that negotiations between the two countries are proceeding smoothly.
Industrial companies are heavily dependent on international markets such as China. Additionally, tariffs on steel and aluminum imports, especially from China would lead to a significant increase in input costs. This is why the reduction in trade tensions is likely to benefit industrial stocks. With the global economic outlook remaining strong, investing in industrials looks like a smart option.
Mnuchin Eases Trade War Fears
Speaking to Fox News on May 20, Treasury Secretary Steven Mnuchin said that the United States was “putting the trade war on hold.” Mnuchin added that the tariffs on China would be held back as the two countries negotiate an agreement. The major objective of such a negotiation would be to reduce the massive trade deficit that the United States has with China.
Speaking to CNBC on Monday, Mnuchin reiterated his stance on tariffs stating that that the two sides had “made very meaningful progress, and now it is up to both of us to ensure we can implement it.” Mnuchin’s comments boosted markets on Monday with the S&P 500 touching its highest level since the middle of March.
Successful Trade Negotiations to Aid Industrials
The leading gainer among the S&P 500’s 11 sectors was the Industrial Select Sector SPDR (XLI) which gained 1.5% at the close. Incidentally, the XLI has been trailing the S&P 500 year to date as well as over the past one month. The XLI has increased 1.2% since the third week of April versus the S&P 500’s gain of 2.4% over the same period.
Surprisingly, industrials lag their sector counterparts despite a stellar first-quarter earnings performance. Trade tensions between the United States and China were one of the major reasons for industrials’ poor price performance.
If implemented, Trump’s decision to impose tariffs on steel and aluminum imports would significantly increase input costs. Further, industrial companies are heavily dependent on international markets such as China.
Further, at the start of trade negotiations, China’s state media had claimed that the country would adopt a tough stance. However, recent events have dispelled such concerns and industrials seem slated to gain in the days ahead.
Our Choices
Industrials emerged as the biggest gainer as markets surged on the easing of trade tensions between the United States and China. Industrial companies will now have a little less to worry about. This is because the imposition of trade tariffs would raise input costs and shut out a major market for such firms.
Additionally, the global economic outlook remains bright, which means that adding industrials to your portfolio could be a profitable option. However, picking winning stocks may be difficult.
This is where our VGM Score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score.
We have narrowed down our search to the following stocks based on a good Zacks Rank and VGM Score.
Caterpillar Inc. (CAT - Free Report) is the world’s leading manufacturer of construction and mining equipment, diesel and natural gas engines and industrial gas turbines.
Caterpillar has a VGM Score of A. The company has expected earnings growth of 55.8% for the current year. The Zacks Consensus Estimate for the current year has improved by 16.3% over the last 30 days. The stock has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Sonoco Products Co. (SON - Free Report) is a global manufacturer of consumer and industrial packaging products.
Sonoco Products has a Zacks Rank #2 (Buy) and a VGM Score of A. The company has expected earnings growth of 18% for the current year. The Zacks Consensus Estimate for the current year has improved by 2.5% over the last 30 days.
Nordson Corporation (NDSN - Free Report) is one of the leading manufacturers and distributors of products and systems designed to dispense, apply and control adhesives, coatings, polymers, sealants, biomaterials and other fluids.
Nordson has a Zacks Rank #2 and a VGM Score of A. The company has expected earnings growth of 18% for the current year. The Zacks Consensus Estimate for the current year has improved by 0.1% over the last 30 days.
Donaldson Company, Inc. (DCI - Free Report) is engaged in manufacturing and selling of filtration systems and replacement parts across the world.
Donaldson has a Zacks Rank #2 and a VGM Score of B. The company has expected earnings growth of 17.4% for the current year. The Zacks Consensus Estimate for the current year has improved by 0.2% over the last 30 days.
Zebra Technologies Corporation (ZBRA - Free Report) is a designer, manufacturer and seller of a variety of automatic identification and data capture (AIDC) products on a global basis.
Zebra Technologies has a Zacks Rank #2 and a VGM Score of B. The company has expected earnings growth of 26.7% for the current year. The Zacks Consensus Estimate for the current year has improved by 2.9% over the last 30 days.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>