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4 Industrial Manufacturing Stocks to Buy Amid Industry Challenges
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The Zacks Manufacturing – General Industrial industry has benefited from the consistent rise in domestic and export orders for industrial products and growth in the e-commerce business. The industry participants’ efforts to digitalize business operations have enhanced their competitiveness.
The pandemic’s impacts on customers’ spending and high innovation investments have marred the outlook of the industry participants. Also, supply-chain issues, inflation in raw materials and difficulty in sourcing skilled labor remain concerns for the companies. Ferguson plc (FERG - Free Report) , Graco Inc. (GGG - Free Report) , Xometry, Inc. (XMTR - Free Report) and Alta Equipment Group Inc. (ALTG - Free Report) are a few stocks with healthy prospects.
About the Industry
The Zacks Manufacturing – General Industrial industry comprises companies 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, 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 petrochemicals, transportation and utilities.
3 Trends Shaping the Future of the Manufacturing General Industrial Industry
Favorable Trends: The industry has been benefiting from a consistent rise in manufacturing activities, supported by growth in domestic and export orders for industrial products. The ISM’s manufacturing index registered 58.7% in December 2021, indicating expansion of the U.S. manufacturing activity for the 19th month in a row. The digitalization of business operations has also enabled industry participants to boost their competitiveness with enhanced operational productivity, product quality and lower costs. A surge in the e-commerce business, particularly amid the COVID-19 pandemic, has also proved beneficial for the companies.
Pandemic Related Concerns: The fresh imposition of pandemic-related restrictions in many parts of the world, owing to the outbreak of a third wave, has raised concerns for industry players as it might adversely impact their customers’ spending. The industry participants have also been experiencing supply-chain disruptions, logistic issues and inflation in raw materials and other expenses, which have been weighing on their margins and profitability. The shortage of skilled workers in the United States has been a perennial concern as well for the industry participants.
High Leverage: Innovation plays an important role in the industry. The industry participants are required to upgrade products and services for staying competitive in the market, making steady investments necessary. However, these frequent investments hurt the margins and profitability of the companies. Also, the industry players often make acquisitions to expand product portfolio, strengthen technological capabilities and extend geographical presence. Such massive investments often leave many companies with a highly leveraged balance sheet.
Zacks Industry Rank Indicates Bleak Prospects
The Manufacturing – General Industrial industry is a 38-stock group within the broader Zacks Industrial Products sector. The industry currently carries a Zacks Industry Rank #162, which places it in the bottom 36% 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 weak 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 bottom 50% of the Zacks-ranked industries is a result of bleak earnings prospects for the constituent companies in aggregate. Looking at the aggregate earnings estimate revision, it appears that analysts are keeping less faith in this group's earnings growth potential. The industry’s earnings estimates for the current year have moved down 2.7% since end of June 2021.
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 both the S&P 500 and the sector in the past year. While stocks in the industry have collectively gained 2%, the S&P 500 and the Zacks Industrial Products sector have grown 14.4% and 2.4%, 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 21.48x. This clearly shows that the industry is trading above the sector’s forward 12-month P/E of 18.71x, and the S&P 500’s 20x.
Over the past five years, the industry has traded at the highest level of 26.83x forward 12-month P/E and the lowest level of 15.44x. The median level over the same period was 21.08x.
Manufacturing–General Industrial Industry’s Valuation Versus S&P 500
Manufacturing–General Industrial Industry’s Valuation Versus Sector
4 Manufacturing-General Industrial Stocks Leading the Pack
Here we have discussed four stocks from the industry that have solid growth opportunities despite the prevalent headwinds. The stocks currently carry either a Zacks Rank #1 (Strong Buy) or a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Ferguson: Headquartered in Wokingham, the U.K., Ferguson provides heating and plumbing products and solutions in the United States and Canada. The company stands to benefit from strength across its residential and non-residential markets, acquisitions, focus on operational execution and shareholder-friendly policies. Also, its cost reduction initiatives and investments in supply chain capabilities and technology program are likely to be tailwinds.
Shares of the Zacks Rank #1 company have soared 28.1% in the past year. It reported better-than-expected results in the last reported quarter, with earnings surprise being 16.82%. The company’s earnings estimates have improved 10.5% for fiscal 2022 (ending July 2022) and 8.5% for fiscal 2023 (ending July 2023) in the past 60 days.
Price and Consensus: FERG
Graco: Based in Minneapolis, MN, the company is engaged in designing, manufacturing and marketing equipment and systems used to measure, move, control, spray and dispense fluid as well as powder materials. It is poised to benefit from a solid demand environment, exposure in new markets and a healthy liquidity position. Also, its product development initiative, buyouts and shareholder-friendly policies raise its attractiveness.
The Zacks Rank #2 company has lost 4.5% in the past year. It reported better-than-expected results thrice in the last four quarters, with the earnings surprise being 6.58%, on average. In the past 60 days, the company’s earnings estimates have moved up 1.9% for 2022.
Price and Consensus: GGG
Xometry: Based in Derwood, MD, Xometry is a leading AI-enabled marketplace, which allows buyers to source manufactured parts and assemblies throughout the world. The company stands to benefit from a solid product portfolio, growth in demand for its products and solutions and acquired assets.
Although shares of the Zacks Rank #2 company have lost 40.7% in the past year, it has recorded a gain of 2.3% in the past month. In the last reported quarter, its bottom line missed the consensus estimate by 6.45%. The company’s bottom-line estimates have improved 2.3% for 2022 in the past 60 days.
Price and Consensus: XMTR
Alta Equipment Group: The Livonia, MI-based company engages in providing premium material handling and construction equipment and related services in the United States. The company seems well-placed to gain from solid momentum in its material handling and construction equipment businesses, entry into the electric vehicle market and acquired assets. Also, its efforts to expand its geographical presence in key markets and investments in scalable infrastructure are likely to drive its performance in the quarters ahead.
Shares of this Zacks Rank #2 company have returned 33.4% in the past year. In the last reported quarter, its earnings missed the consensus estimate by 50.00%. The company’s earnings estimates have improved 5.3% for 2022 in the past 60 days.
Price and Consensus: ALTG
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4 Industrial Manufacturing Stocks to Buy Amid Industry Challenges
The Zacks Manufacturing – General Industrial industry has benefited from the consistent rise in domestic and export orders for industrial products and growth in the e-commerce business. The industry participants’ efforts to digitalize business operations have enhanced their competitiveness.
The pandemic’s impacts on customers’ spending and high innovation investments have marred the outlook of the industry participants. Also, supply-chain issues, inflation in raw materials and difficulty in sourcing skilled labor remain concerns for the companies. Ferguson plc (FERG - Free Report) , Graco Inc. (GGG - Free Report) , Xometry, Inc. (XMTR - Free Report) and Alta Equipment Group Inc. (ALTG - Free Report) are a few stocks with healthy prospects.
About the Industry
The Zacks Manufacturing – General Industrial industry comprises companies 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, 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 petrochemicals, transportation and utilities.
3 Trends Shaping the Future of the Manufacturing General Industrial Industry
Favorable Trends: The industry has been benefiting from a consistent rise in manufacturing activities, supported by growth in domestic and export orders for industrial products. The ISM’s manufacturing index registered 58.7% in December 2021, indicating expansion of the U.S. manufacturing activity for the 19th month in a row. The digitalization of business operations has also enabled industry participants to boost their competitiveness with enhanced operational productivity, product quality and lower costs. A surge in the e-commerce business, particularly amid the COVID-19 pandemic, has also proved beneficial for the companies.
Pandemic Related Concerns: The fresh imposition of pandemic-related restrictions in many parts of the world, owing to the outbreak of a third wave, has raised concerns for industry players as it might adversely impact their customers’ spending. The industry participants have also been experiencing supply-chain disruptions, logistic issues and inflation in raw materials and other expenses, which have been weighing on their margins and profitability. The shortage of skilled workers in the United States has been a perennial concern as well for the industry participants.
High Leverage: Innovation plays an important role in the industry. The industry participants are required to upgrade products and services for staying competitive in the market, making steady investments necessary. However, these frequent investments hurt the margins and profitability of the companies. Also, the industry players often make acquisitions to expand product portfolio, strengthen technological capabilities and extend geographical presence. Such massive investments often leave many companies with a highly leveraged balance sheet.
Zacks Industry Rank Indicates Bleak Prospects
The Manufacturing – General Industrial industry is a 38-stock group within the broader Zacks Industrial Products sector. The industry currently carries a Zacks Industry Rank #162, which places it in the bottom 36% 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 weak 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 bottom 50% of the Zacks-ranked industries is a result of bleak earnings prospects for the constituent companies in aggregate. Looking at the aggregate earnings estimate revision, it appears that analysts are keeping less faith in this group's earnings growth potential. The industry’s earnings estimates for the current year have moved down 2.7% since end of June 2021.
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 both the S&P 500 and the sector in the past year. While stocks in the industry have collectively gained 2%, the S&P 500 and the Zacks Industrial Products sector have grown 14.4% and 2.4%, 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 21.48x. This clearly shows that the industry is trading above the sector’s forward 12-month P/E of 18.71x, and the S&P 500’s 20x.
Over the past five years, the industry has traded at the highest level of 26.83x forward 12-month P/E and the lowest level of 15.44x. The median level over the same period was 21.08x.
Manufacturing–General Industrial Industry’s Valuation Versus S&P 500
Manufacturing–General Industrial Industry’s Valuation Versus Sector
4 Manufacturing-General Industrial Stocks Leading the Pack
Here we have discussed four stocks from the industry that have solid growth opportunities despite the prevalent headwinds. The stocks currently carry either a Zacks Rank #1 (Strong Buy) or a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Ferguson: Headquartered in Wokingham, the U.K., Ferguson provides heating and plumbing products and solutions in the United States and Canada. The company stands to benefit from strength across its residential and non-residential markets, acquisitions, focus on operational execution and shareholder-friendly policies. Also, its cost reduction initiatives and investments in supply chain capabilities and technology program are likely to be tailwinds.
Shares of the Zacks Rank #1 company have soared 28.1% in the past year. It reported better-than-expected results in the last reported quarter, with earnings surprise being 16.82%. The company’s earnings estimates have improved 10.5% for fiscal 2022 (ending July 2022) and 8.5% for fiscal 2023 (ending July 2023) in the past 60 days.
Price and Consensus: FERG
Graco: Based in Minneapolis, MN, the company is engaged in designing, manufacturing and marketing equipment and systems used to measure, move, control, spray and dispense fluid as well as powder materials. It is poised to benefit from a solid demand environment, exposure in new markets and a healthy liquidity position. Also, its product development initiative, buyouts and shareholder-friendly policies raise its attractiveness.
The Zacks Rank #2 company has lost 4.5% in the past year. It reported better-than-expected results thrice in the last four quarters, with the earnings surprise being 6.58%, on average. In the past 60 days, the company’s earnings estimates have moved up 1.9% for 2022.
Price and Consensus: GGG
Xometry: Based in Derwood, MD, Xometry is a leading AI-enabled marketplace, which allows buyers to source manufactured parts and assemblies throughout the world. The company stands to benefit from a solid product portfolio, growth in demand for its products and solutions and acquired assets.
Although shares of the Zacks Rank #2 company have lost 40.7% in the past year, it has recorded a gain of 2.3% in the past month. In the last reported quarter, its bottom line missed the consensus estimate by 6.45%. The company’s bottom-line estimates have improved 2.3% for 2022 in the past 60 days.
Price and Consensus: XMTR
Alta Equipment Group: The Livonia, MI-based company engages in providing premium material handling and construction equipment and related services in the United States. The company seems well-placed to gain from solid momentum in its material handling and construction equipment businesses, entry into the electric vehicle market and acquired assets. Also, its efforts to expand its geographical presence in key markets and investments in scalable infrastructure are likely to drive its performance in the quarters ahead.
Shares of this Zacks Rank #2 company have returned 33.4% in the past year. In the last reported quarter, its earnings missed the consensus estimate by 50.00%. The company’s earnings estimates have improved 5.3% for 2022 in the past 60 days.
Price and Consensus: ALTG