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3 Top Industrial Manufacturing Stocks to Buy on Improved Supply Chain
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A low-demand environment due to a slowdown in the manufacturing sector is weighing on the Zacks Manufacturing – General Industrial industry. However, improving supply chains and reduced delivery lead times bode well for the industry’s growth. Focus on inorganic activities to expand network and product offerings, and investments in product development and innovation should drive the industry’s growth.
Companies like Ingersoll Rand Inc. (IR - Free Report) , Graco Inc. (GGG - Free Report) and Flowserve Corporation (FLS - Free Report) are well-placed to capitalize on the buoyancy in the industry.
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, gel coat equipment, flow-control components and linear motion components. In addition, 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 the mining, oil and gas, forest products, agriculture and food processing, fabricated metals, chemicals and petrochemicals, transportation and utilities industries.
3 Trends Shaping the Future of the Manufacturing General Industrial Industry
Persistent Weakness in the Manufacturing Sector: Continued weakness in the manufacturing sector signals a low demand environment for the industry players. Per the Institute for Supply Management (ISM) report, in May, the Manufacturing PMI (Purchasing Manager’s Index) touched 46.9%, contracting for the seventh consecutive month. A figure less than 50% indicates a contraction in manufacturing activity. The New Orders Index remained in contraction territory at 42.6%, declining 3.1 percentage points from the figure recorded in April. As recession fears loom large amid a slowdown in the U.S. economy, businesses expect continued softness in demand at least in the near term.
Easing Supply Chain Disruptions: While supply chain disruptions persist, especially related to the availability of electronic components, the situation has improved as evident from the ISM report’s Supplier Deliveries Index, which reflected faster deliveries for the eighth straight month in May. Easing supply chain issues should support industrial manufacturing companies’ growth in 2023.
Acquisition-Based Growth Strategy: The industry participants focus on an acquisition-based growth strategy to expand their network and product offerings. This helps them foray into new markets and solidify their competitive position. Exposure to various end-markets helps industrial manufacturing companies offset risks associated with a single market. Continuous investments in product development and innovation, automation and technological advancements augur well for the industry’s growth.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Manufacturing – General Industrial industry, housed within the broader Zacks Industrial Products sector, currently carries a Zacks Industry Rank #40. This rank places it in the top 16% 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 positive earnings outlook for the constituent companies in aggregate. The Zacks Consensus Estimate for the group’s 2023 earnings per share has increased 9.8% since the end of January.
Given the industry’s bright near-term prospects, we will present a few stocks, worth considering for your portfolio. But before that, it’s worth taking a look at the industry’s stock market performance and current valuation.
Industry Outperforms Both Sector & S&P
The Zacks Manufacturing – General Industrial industry has outperformed both the broader sector and the Zacks S&P 500 composite index over the past year.
Over this period, the industry has appreciated 10.2% compared with the sector and the S&P 500 Index’s increase of 2.3% and 4.1%, respectively.
One-Year Price Performance
Industry's Current Valuation
On the basis of forward 12-month Price-to-Earnings (P/E), which is a commonly used multiple for valuing manufacturing stocks, the industry is currently trading at 17.74X compared with the S&P 500’s 19.01X. It is also above the sector’s P/E ratio of 15.53X.
Over the past five years, the industry has traded as high as 26.96X, as low as 14.92X and at the median of 18.83X as the chart below shows.
Price-to-Earnings Ratio
Price-to-Earnings Ratio
3 Manufacturing-General Industrial Stocks Leading the Pack
Ingersoll Rand: Headquartered in Davidson, NC, Ingersoll Rand, a global industrial company, has expertise in industrial and mission-critical flow creation technologies. Solid underlying demand and higher orders should drive the company’s growth. IR’s focus on expanding its market presence, solidifying its customer base and enhancing product offerings through acquisitions is a key catalyst to its growth. In January 2023, the company completed the acquisition of SPX FLOW’s Air Treatment business, boosting its core compressor product offering.
The Zacks Consensus Estimate for Ingersoll Rand’s 2023 earnings has been revised upward by 7.5% in the past 60 days. Shares of the company have rallied 24.4% in a year.
Price and Consensus: IR
Graco: Based in Minneapolis, MN, Graco is a manufacturing company engaged in designing, manufacturing and marketing equipment and systems. Strength in the Process segment due to higher sales in vehicle service, industrial lubrication, process transfer pumps, environmental, and semiconductor augur well for GGG. Investments in product innovation and capacity expansion should fuel the company’s growth.
The Zacks Consensus Estimate for Graco’s 2023 earnings has been revised upward by 10.9% in the past 60 days. Shares of the company have gained 25.3% in a year.
Price and Consensus: GGG
Flowserve: Headquartered in Irving, TX, Flowserve is a leading manufacturer and aftermarket service provider of comprehensive flow control systems, globally. The company is thriving on the back of record booking levels due to strong manufacturing, repair and operations (“MRO”) and aftermarket activity. The acquisition of Velan, expected to be completed in the third quarter of 2023, will strengthen FLS’ valves portfolio, thus bolstering its growth.
The Zacks Consensus Estimate for Flowserve’s 2023 earnings has been revised upward by 9% in the past 60 days. Shares of the company have appreciated 12.5% in a year.
Price and Consensus: FLS
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3 Top Industrial Manufacturing Stocks to Buy on Improved Supply Chain
A low-demand environment due to a slowdown in the manufacturing sector is weighing on the Zacks Manufacturing – General Industrial industry. However, improving supply chains and reduced delivery lead times bode well for the industry’s growth. Focus on inorganic activities to expand network and product offerings, and investments in product development and innovation should drive the industry’s growth.
Companies like Ingersoll Rand Inc. (IR - Free Report) , Graco Inc. (GGG - Free Report) and Flowserve Corporation (FLS - Free Report) are well-placed to capitalize on the buoyancy in the industry.
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, gel coat equipment, flow-control components and linear motion components. In addition, 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 the mining, oil and gas, forest products, agriculture and food processing, fabricated metals, chemicals and petrochemicals, transportation and utilities industries.
3 Trends Shaping the Future of the Manufacturing General Industrial Industry
Persistent Weakness in the Manufacturing Sector: Continued weakness in the manufacturing sector signals a low demand environment for the industry players. Per the Institute for Supply Management (ISM) report, in May, the Manufacturing PMI (Purchasing Manager’s Index) touched 46.9%, contracting for the seventh consecutive month. A figure less than 50% indicates a contraction in manufacturing activity. The New Orders Index remained in contraction territory at 42.6%, declining 3.1 percentage points from the figure recorded in April. As recession fears loom large amid a slowdown in the U.S. economy, businesses expect continued softness in demand at least in the near term.
Easing Supply Chain Disruptions: While supply chain disruptions persist, especially related to the availability of electronic components, the situation has improved as evident from the ISM report’s Supplier Deliveries Index, which reflected faster deliveries for the eighth straight month in May. Easing supply chain issues should support industrial manufacturing companies’ growth in 2023.
Acquisition-Based Growth Strategy: The industry participants focus on an acquisition-based growth strategy to expand their network and product offerings. This helps them foray into new markets and solidify their competitive position. Exposure to various end-markets helps industrial manufacturing companies offset risks associated with a single market. Continuous investments in product development and innovation, automation and technological advancements augur well for the industry’s growth.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Manufacturing – General Industrial industry, housed within the broader Zacks Industrial Products sector, currently carries a Zacks Industry Rank #40. This rank places it in the top 16% 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 positive earnings outlook for the constituent companies in aggregate. The Zacks Consensus Estimate for the group’s 2023 earnings per share has increased 9.8% since the end of January.
Given the industry’s bright near-term prospects, we will present a few stocks, worth considering for your portfolio. But before that, it’s worth taking a look at the industry’s stock market performance and current valuation.
Industry Outperforms Both Sector & S&P
The Zacks Manufacturing – General Industrial industry has outperformed both the broader sector and the Zacks S&P 500 composite index over the past year.
Over this period, the industry has appreciated 10.2% compared with the sector and the S&P 500 Index’s increase of 2.3% and 4.1%, respectively.
One-Year Price Performance
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Industry's Current Valuation
On the basis of forward 12-month Price-to-Earnings (P/E), which is a commonly used multiple for valuing manufacturing stocks, the industry is currently trading at 17.74X compared with the S&P 500’s 19.01X. It is also above the sector’s P/E ratio of 15.53X.
Over the past five years, the industry has traded as high as 26.96X, as low as 14.92X and at the median of 18.83X as the chart below shows.
Price-to-Earnings Ratio
Price-to-Earnings Ratio
3 Manufacturing-General Industrial Stocks Leading the Pack
Each of the stocks below sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Ingersoll Rand: Headquartered in Davidson, NC, Ingersoll Rand, a global industrial company, has expertise in industrial and mission-critical flow creation technologies. Solid underlying demand and higher orders should drive the company’s growth. IR’s focus on expanding its market presence, solidifying its customer base and enhancing product offerings through acquisitions is a key catalyst to its growth. In January 2023, the company completed the acquisition of SPX FLOW’s Air Treatment business, boosting its core compressor product offering.
The Zacks Consensus Estimate for Ingersoll Rand’s 2023 earnings has been revised upward by 7.5% in the past 60 days. Shares of the company have rallied 24.4% in a year.
Price and Consensus: IR
Graco: Based in Minneapolis, MN, Graco is a manufacturing company engaged in designing, manufacturing and marketing equipment and systems. Strength in the Process segment due to higher sales in vehicle service, industrial lubrication, process transfer pumps, environmental, and semiconductor augur well for GGG. Investments in product innovation and capacity expansion should fuel the company’s growth.
The Zacks Consensus Estimate for Graco’s 2023 earnings has been revised upward by 10.9% in the past 60 days. Shares of the company have gained 25.3% in a year.
Price and Consensus: GGG
Flowserve: Headquartered in Irving, TX, Flowserve is a leading manufacturer and aftermarket service provider of comprehensive flow control systems, globally. The company is thriving on the back of record booking levels due to strong manufacturing, repair and operations (“MRO”) and aftermarket activity. The acquisition of Velan, expected to be completed in the third quarter of 2023, will strengthen FLS’ valves portfolio, thus bolstering its growth.
The Zacks Consensus Estimate for Flowserve’s 2023 earnings has been revised upward by 9% in the past 60 days. Shares of the company have appreciated 12.5% in a year.
Price and Consensus: FLS