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4 Top Stocks From the Prospering Industrial Manufacturing Industry

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The Zacks Manufacturing – General Industrial industry seems to be benefiting from the consistent rise in domestic demand and export orders for industrial products and growth in the e-commerce business. With the widespread rollout of COVID-19 vaccines, the industry is expected to gain from improvement in economic activities and technological progress in manufacturing processes.

Industry players like Dover Corporation (DOV - Free Report) , Ingersoll Rand Inc. (IR - Free Report) , IDEX Corporation (IEX - Free Report) , and Nordson Corporation (NDSN - Free Report) are well poised to capitalize on these opportunities. However, high costs related to the frequent upgrade of products and supply-chain disruptions might affect the profitability of the industry players.

About the Industry

The Zacks Manufacturing – General Industrial industry comprises companies that are engaged in the production of a wide range of industrial equipment.

Some industry players offer power transmission products, bearings, engineered fluid power components and systems, industrial rubber products, vapor-abrasive blasting equipment, vehicle-powered truck refrigeration systems, adhesive, gel coat equipment, flow-control components, safety products, and linear motion components. Industrial manufacturing companies reconstruct and assemble pumps, valves, speed reducers, and hydraulic motors.

The companies provide services to original equipment manufacturing, and maintenance, repair and overhaul customers. These end users belong to industries such as mining, oil and gas, forest products, agriculture and food processing, fabricated metals, chemicals and utilities.

What's Shaping the Future of Manufacturing General Industrial Industry

Strong Demand for Industrial Products: The industry has been performing strongly with the consistent improvement in manufacturing activities, supported by impressive growth in domestic and international orders for industrial products. For instance, U.S. manufacturing activity expanded for the 15th month in a row in August, per the latest Institute for Supply Management’s (“ISM”) report released on Sep 1. The ISM’s manufacturing index registered 59.9% in August, higher than 59.5% in the previous month. This indicates the consistent improvement in economic activities in the manufacturing sector as industry participants have been ramping up the production level consistent with growth in demand for products. The industry is also witnessing a surge in the e-commerce business, which has opened up opportunities for the companies.

Technological Advancement Benefits: The U.S. industrial manufacturing companies have been focusing on digitizing their business operations with the advent of new technologies and business models. Digitization has been enabling several manufacturers to gain detailed insight into their operational performance, demand cycles, delivery status, and supply-chain issues. This has been improving their competitiveness with enhanced operational productivity, product quality, and lower costs. Also, the Federal Reserve’s easing policy to support the pandemic hit economy is expected to continue aiding the industrial manufacturers.

Existing Woes: Despite the positives, some industry participants are facing supply-chain challenges, logistic issues, and inflation, which weigh on their margins and profitability. Also, the requirement of investing frequently to upgrade products and services for staying competitive in the market often hurt the margins and profitability of industry participants. The shortage of skilled workers in the United States is a persistent concern as well.

Zacks Industry Rank Indicates Strong Prospects

The Manufacturing – General Industrial industry is a 40-stock group within the broader Zacks Industrial Products sector. The industry currently carries a Zacks Industry Rank #52, which places it in the top 21% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of improved earnings prospects for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gaining confidence in this group’s earnings growth potential. The industry’s earnings estimates for 2021 have increased 27.4% on a year-over-year basis.

Before we discuss a few stocks from the industry, it is worth taking a look at the industry’s shareholder returns and its current valuation.

Industry Underperforms S&P 500 & Sector

The Zacks Manufacturing – General Industrial industry has underperformed the S&P 500 and the sector in the past year. While stocks in the industry have collectively gained 25.3%, the S&P 500 and the Zacks Industrial Products sector have grown 33.5% and 32.3%, respectively.

One-Year Price Performance

Manufacturing - General Industrial Industry's Valuation

Price/Earnings (P/E) ratio is commonly used for valuing manufacturing stocks.

The industry’s forward 12-month P/E is 22.42x. This clearly shows that the industry is trading above the sector’s forward 12-month P/E of 20.32x, and the S&P 500’s 21.48x.

Over the past five years, the industry has traded at the highest level of 26.93x forward 12-month P/E and the lowest level of 15.44x. The median level over the same period was 20.85x.

Manufacturing–General Industrial Industry’s Valuation Versus S&P 500

Manufacturing–General Industrial Industry’s Valuation Versus Sector

4 Manufacturing-General Industrial Stocks Moving Ahead of the Pack

Here we have discussed four stocks from the industry that have solid growth opportunities despite the prevalent supply-chain headwinds. The stocks currently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Dover: Headquartered in Downers Grove, IL, Dover is an industrial company that produces a wide range of specialized industrial products and manufacturing equipment. The company stands to benefit from strong demand growth in compressor components, foodservice, and textile printing business. Also, its cost reduction initiatives, acquisitions, new product development, and inorganic investment in core business platforms will drive growth. For 2021, it anticipates revenues to grow 15-17% year over year.

Shares of the company have gained 52.7% in the past year. It reported better-than-expected results in each of the last four quarters, with the earnings surprise being 17.59%, on average. Also, the company’s earnings estimates have improved 7.7% for 2021 and 7.1% for 2022 in the past 60 days.

Price and Consensus: DOV

Ingersoll Rand: Based in Davidson, NC, the company is a global industrial company, with expertise in industrial and mission-critical flow creation technologies. It is poised to benefit from its exposure in various end markets along with its strong product portfolio and innovation capabilities. Also, its focus on boosting aftermarket businesses and investments in digital, IoT, and the e-commerce space bode well. For 2021, the company anticipates total revenues to grow in the mid-teens range on a year-over-year basis.

The company has gained 50.7% in the past year. It reported better-than-expected results in each of the last four quarters, with the earnings surprise being 21.06%, on average. In the past 60 days, the company’s earnings estimates have moved up 9.4% for 2021 and 7.5% for 2022.

Price and Consensus: IR

IDEX: Based in Northbrook, IL, IDEX Corporation is an applied solutions company that specializes in a diverse range of applications such as fluid and metering technologies, health and science technologies, and fire, safety and other products built to customer specifications. It stands to benefit from strength in the agriculture, industrial, automotive, semiconductor, and life sciences markets. Also, its solid product portfolio, execution abilities, and growth investments are likely to drive its performance. For 2021, it anticipates year-over-year organic sales growth of 11-12%.

Shares of the company have gained 18% in the past year. It reported better-than-expected results thrice in the trailing four quarters, with the earnings surprise being 6.73%, on average. The company’s earnings estimates have improved 3.8% for 2021 and 4.5% for 2022 in the past 60 days.

Price and Consensus: IEX

Nordson: The Westlake, OH-based company is a leading manufacturer and distributor of products and systems designed to dispense, apply and control adhesives, coatings, polymers, sealants, biomaterials, and other fluids. The company seems well-placed to gain from strengthening businesses in end markets like industrial, electronics, medical and consumer non-durable, and the implementation of the Nordson Business System (“NBS Next”) growth framework. Acquisitions made by it over time are also likely to act as tailwinds. For fiscal 2021 (ending October 2021), it anticipates revenue growth of 11-12% on a year-over-year basis.

Shares of this company have returned 23.5% in the past year. It reported better-than-expected results in each of the last four quarters, with the earnings surprise being 17.77% on average. The company’s earnings estimates have improved 5.3% for fiscal 2021 and 6.9% for fiscal 2022 (ending October 2022) in the past 60 days.

Price and Consensus: NDSN