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2 Stocks to Watch in the Flourishing Manufacturing Tools Industry
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The Zacks Manufacturing-Tools & Related Products industry stands to benefit from strong demand for machine tools in the automotive end-market. Higher usage of electrical devices these days should drive demand for manufacturing tools. With rapid urbanization and the associated investments in product development and technological advancement, the industry is poised for growth in the near term despite supply chain disruptions and raw material cost inflation. Continued expansion in manufacturing activities is an added positive for the industry.
Amid the buoyancy, Lincoln Electric Holdings (LECO - Free Report) and Enerpac Tool Group (EPAC - Free Report) are poised for growth.
About the Industry
The Zacks Manufacturing-Tools & Related Products industry comprises companies that develop and distribute hand and mechanics tools, hydraulic tools, engineered fastening systems, and heavy-lifting technology solutions. Arc-welding products, robotic-welding packages, fume-extraction equipment, oxy-fuel cutting equipment, plasma cutters, healthcare solutions, electronic security solutions and other products are also produced by some tool-makers. The highly advanced tools are used in industrial, commercial, oil & gas, mining, automotive and other industries. The providers of electronic security solutions cater to commercial, retailers, government, financial and healthcare markets. Talking about international operations, some industry players provide products and services to customers in North and South America, Japan, Europe, Canada, Asia and the Middle East.
3 Trends Shaping the Future of the Manufacturing Tools Industry
Strength Across End-Markets: The growing adoption of machine tools to manufacture parts and components in the automotive end-market should fuel growth of the industry. With people relying more on electrical devices these days to carry out day-to-day tasks, demand for manufacturing tools should increase. The increasing adoption of automation and the growing popularity of artificial intelligence are key growth catalysts. With rapid urbanization, increasing investments in product developments and technological advances are expected to drive growth of the manufacturing tools industry. Continued expansion in manufacturing activities also supports the growth of the industry. In September, Institute for Supply Management’s (ISM) manufacturing index registered 50.9%, indicating growth for 28 months in a row.
Investments in Product Development & Innovation: Industry participants need to constantly upgrade products to stay competitive in the market. To this end, investments in product development and innovation bode well for the industry’s prospects. The industry participants’ focus on expanding product offerings, geographical reach and customer base through strategic acquisitions should continue to boost their top lines.
Supply Chain & Cost Woes: The industry is plagued by persistent supply chain disruptions, mainly related to the availability of semiconductor chips. Raw material, freight and logistics cost inflation are hurting margins and profitability of industry participants. A dearth of skilled workers in the United States has been a perennial problem for the industry participants.
Zacks Industry Rank Indicates Solid Prospects
The Zacks Manufacturing-Tools & Related Products industry, housed within the broader Zacks Industrial Products sector, currently carries a Zacks Industry Rank #93. This rank places it in the top 37% 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 bullish near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms 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 the positive earnings outlook for the constituent companies in aggregate. The industry’s earnings estimates for 2022 have increased by 2 cents since July-end.
Given the bullish near-term prospects of the industry, we will present two noteworthy stocks. But it is worth taking a look at the industry’s shareholder returns and its current valuation first.
Industry Underperforms S&P 500 & Sector
The Zacks Manufacturing-Tools & Related Products industry has underperformed both the S&P 500 composite index and the sector in the past year.
Over this period, the industry has declined 44.7%, compared with the S&P 500 and the broader sector’s decline of 17.6% and 18.7%, respectively.
One-Year Price Performance
Industry's Current Valuation
On the basis of forward P/E (F12M), which is a commonly used multiple for valuing manufacturing tools and related product stocks, the industry is currently trading at 8.02X compared with the S&P 500’s 15.70X. It is also below the sector’s P/E (F12M) ratio of 13.82X.
Over the past five years, the industry has traded as high as 21.45X, as low as 7.95X and at the median of 15.09X, as the chart below shows:
Price-to-Earnings Ratio
Price-to-Earnings Ratio
2 Manufacturing Tool Stocks to Keep a Tab on
Enerpac: The company should benefit from strength across its oil & gas and wind end-markets. EPAC’s expansion initiatives, product innovation, market share gains and commercial efficiency act as key growth catalysts. The company’s ASCEND transformation program, aimed at driving organic growth through focused market penetration and go-to-market strategies, holds promise. EPAC sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Headquartered in Menomonee Falls, WI, Enerpac is involved in the designing, manufacturing and distribution of various industrial tools. The Zacks Consensus Estimate for EPAC’s fiscal 2023 earnings has been revised upward by 9.2% in the past 90 days. Shares of the company have gained nearly 7% in the past three months.
Price and Consensus: EPAC
Lincoln Electric: The company is benefiting from operational improvements in its automation portfolio and strength in Americas Welding. Robust backlogs and acquisitions are expected to aid Lincoln Electric’s performance throughout this year. LECO’s March 2022 acquisition of Kestra Universal Soldas has expanded its specialty alloy capabilities in South America. LECO’s focus on product development and new additive services business should drive its growth. The company carries a Zacks Rank #3 (Hold).
Headquartered in Cleveland, OH, Lincoln Electric is a manufacturer and reseller of welding and cutting products. The Zacks Consensus Estimate for LECO’s 2022 earnings has been revised upward by 3.7% in the past 90 days. Shares of the company have inched up nearly 1% in the past three months.
Price and Consensus: LECO
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2 Stocks to Watch in the Flourishing Manufacturing Tools Industry
The Zacks Manufacturing-Tools & Related Products industry stands to benefit from strong demand for machine tools in the automotive end-market. Higher usage of electrical devices these days should drive demand for manufacturing tools. With rapid urbanization and the associated investments in product development and technological advancement, the industry is poised for growth in the near term despite supply chain disruptions and raw material cost inflation. Continued expansion in manufacturing activities is an added positive for the industry.
Amid the buoyancy, Lincoln Electric Holdings (LECO - Free Report) and Enerpac Tool Group (EPAC - Free Report) are poised for growth.
About the Industry
The Zacks Manufacturing-Tools & Related Products industry comprises companies that develop and distribute hand and mechanics tools, hydraulic tools, engineered fastening systems, and heavy-lifting technology solutions. Arc-welding products, robotic-welding packages, fume-extraction equipment, oxy-fuel cutting equipment, plasma cutters, healthcare solutions, electronic security solutions and other products are also produced by some tool-makers. The highly advanced tools are used in industrial, commercial, oil & gas, mining, automotive and other industries. The providers of electronic security solutions cater to commercial, retailers, government, financial and healthcare markets. Talking about international operations, some industry players provide products and services to customers in North and South America, Japan, Europe, Canada, Asia and the Middle East.
3 Trends Shaping the Future of the Manufacturing Tools Industry
Strength Across End-Markets: The growing adoption of machine tools to manufacture parts and components in the automotive end-market should fuel growth of the industry. With people relying more on electrical devices these days to carry out day-to-day tasks, demand for manufacturing tools should increase. The increasing adoption of automation and the growing popularity of artificial intelligence are key growth catalysts. With rapid urbanization, increasing investments in product developments and technological advances are expected to drive growth of the manufacturing tools industry. Continued expansion in manufacturing activities also supports the growth of the industry. In September, Institute for Supply Management’s (ISM) manufacturing index registered 50.9%, indicating growth for 28 months in a row.
Investments in Product Development & Innovation: Industry participants need to constantly upgrade products to stay competitive in the market. To this end, investments in product development and innovation bode well for the industry’s prospects. The industry participants’ focus on expanding product offerings, geographical reach and customer base through strategic acquisitions should continue to boost their top lines.
Supply Chain & Cost Woes: The industry is plagued by persistent supply chain disruptions, mainly related to the availability of semiconductor chips. Raw material, freight and logistics cost inflation are hurting margins and profitability of industry participants. A dearth of skilled workers in the United States has been a perennial problem for the industry participants.
Zacks Industry Rank Indicates Solid Prospects
The Zacks Manufacturing-Tools & Related Products industry, housed within the broader Zacks Industrial Products sector, currently carries a Zacks Industry Rank #93. This rank places it in the top 37% 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 bullish near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms 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 the positive earnings outlook for the constituent companies in aggregate. The industry’s earnings estimates for 2022 have increased by 2 cents since July-end.
Given the bullish near-term prospects of the industry, we will present two noteworthy stocks. But it is worth taking a look at the industry’s shareholder returns and its current valuation first.
Industry Underperforms S&P 500 & Sector
The Zacks Manufacturing-Tools & Related Products industry has underperformed both the S&P 500 composite index and the sector in the past year.
Over this period, the industry has declined 44.7%, compared with the S&P 500 and the broader sector’s decline of 17.6% and 18.7%, respectively.
One-Year Price Performance
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Industry's Current Valuation
On the basis of forward P/E (F12M), which is a commonly used multiple for valuing manufacturing tools and related product stocks, the industry is currently trading at 8.02X compared with the S&P 500’s 15.70X. It is also below the sector’s P/E (F12M) ratio of 13.82X.
Over the past five years, the industry has traded as high as 21.45X, as low as 7.95X and at the median of 15.09X, as the chart below shows:
Price-to-Earnings Ratio
.jpg)
Price-to-Earnings Ratio
2 Manufacturing Tool Stocks to Keep a Tab on
Enerpac: The company should benefit from strength across its oil & gas and wind end-markets. EPAC’s expansion initiatives, product innovation, market share gains and commercial efficiency act as key growth catalysts. The company’s ASCEND transformation program, aimed at driving organic growth through focused market penetration and go-to-market strategies, holds promise. EPAC sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Headquartered in Menomonee Falls, WI, Enerpac is involved in the designing, manufacturing and distribution of various industrial tools. The Zacks Consensus Estimate for EPAC’s fiscal 2023 earnings has been revised upward by 9.2% in the past 90 days. Shares of the company have gained nearly 7% in the past three months.
Price and Consensus: EPAC
Lincoln Electric: The company is benefiting from operational improvements in its automation portfolio and strength in Americas Welding. Robust backlogs and acquisitions are expected to aid Lincoln Electric’s performance throughout this year. LECO’s March 2022 acquisition of Kestra Universal Soldas has expanded its specialty alloy capabilities in South America. LECO’s focus on product development and new additive services business should drive its growth. The company carries a Zacks Rank #3 (Hold).
Headquartered in Cleveland, OH, Lincoln Electric is a manufacturer and reseller of welding and cutting products. The Zacks Consensus Estimate for LECO’s 2022 earnings has been revised upward by 3.7% in the past 90 days. Shares of the company have inched up nearly 1% in the past three months.
Price and Consensus: LECO