It’s been a rocky start for 2022, as the market pulled back substantially in January and now threatens to retest the lows of that move as we enter the latter half of February. Thursday’s price action was swift as the market opened sharply lower, pared those losses in the early afternoon, only to finish near where it started the day.

The University of Michigan’s preliminary Consumer Sentiment Index reading is due out at 10am this morning. Sentiment is likely to remain subdued this month as consumers continue to feel the effects of higher inflation and lingering supply chain shortages. Estimates are calling for a reading of 67.0, down from 67.2 from the prior reading.

As we attempt to navigate a volatile and uncertain market, investors may be tempted to pull the trigger and buy some beaten down names as they appear ‘cheap’. The problem with this approach is that cheap stocks are normally trading cheaply for a reason, and they will likely become cheaper before potentially staging a turnaround. A much more prudent approach involves identifying stocks that are leading in the current market environment and waiting for proper entry points to present themselves.

On that note, we’re going to analyze three stocks that are all ranked a Zacks #2 Buy or better and have held up well through the recent volatility. All three stocks are components of the Zacks Industrial Products sector, which currently ranks in the top 44% of all Zacks Ranked Sectors. Digging a bit deeper, these companies are contained within the Zacks Manufacturing – Farm Equipment industry group, which ranks in the top 29% of all Zacks Ranked Industries.

It's no secret that investing in stocks located within the top sectors and industries can provide a boost to portfolio returns. This phenomenon been well-researched and documented, illustrating that about half of a stock’s future price appreciation is due to its industry grouping. Our own proprietary study has shown that stocks contained within the top 50% of Zacks Ranked Industries outperformed the bottom 50% by a factor of more than 2 to 1.

To that end, let’s delve into three stocks that sport this favorable sector and industry combination.

Deere & Co. (DE Quick QuoteDE - Free Report)

Deere & Co. is an American manufacturer of construction, agricultural, engine, forestry, and lawn care equipment. The company operates through four segments: Production and Precision Agriculture, Small Agriculture and Turf, Construction and Forestry, and Financial Services. The company is well-known for its tractors, mowing equipment, excavators, milling machines, and sports turf care applications. Deere was founded in 1837 and is headquartered in Moline, IL.

DE is benefitting from technological advances and agricultural mechanization, which are expanding existing markets and creating new ones for the company to thrive in. Deere expects net income for the current fiscal year to lie in the range of $6.5-7 billion on improvements in farming and construction. As commodity prices continue to soar, farmers will fuel demand for the company’s agricultural equipment. The company’s revenue trends are impressive, and sales are expected to climb 18.21% this year to $46.97 billion.

Image Source: Zacks Investment Research

DE is the 78^th largest company in the S&P 500, sporting a $121.17 billion dollar market capitalization. Earnings surprises are a bright spot for the machinery manufacturer, as DE has beaten estimates in each quarter for the past two years. The company most recently reported Q4 EPS of $4.12, delivering a +7.85% surprise over the $3.82 consensus estimate. During the past four quarters, DE has posted an average earnings surprise of +33.57%. Shares have risen in stride, advancing nearly 27% in the past year.