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4 Industrial Manufacturing Stocks to Gain From Enhanced Supply Chains
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The Zacks Manufacturing – General Industrial industry is poised for growth on the back of easing supply-chain disruptions. Despite a slowdown in manufacturing activities, strength across prominent end markets should help the industry stay afloat.
Investments in product development and technological advancements, and focus on expanding operations through strategic acquisitions are expected to foster growth of the industry. Parker-Hannifin Corporation (PH - Free Report) , IDEX Corporation (IEX - Free Report) , Applied Industrial Technologies, Inc. (AIT - Free Report) and Flowserve Corporation (FLS - Free Report) are a few industry participants that might capitalize on the prevalent opportunities.
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 has been weighing on demand in the industry. Per the Institute for Supply Management’s (“ISM”) report, in January, the Manufacturing Purchasing Manager’s Index touched 49.1%, contracting for the 15th consecutive month. A figure less than 50% indicates a contraction in manufacturing activity. However, the manufacturing sector has been showing signs of gradual improvement. In January, the New Order Index increased 4.7 percentage points from December 2023. The uptick in new orders, in conjunction with the slowdown in inflation, augurs well for industrial manufacturing companies.
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 16th straight month in January. Easing supply-chain issues should support industrial manufacturing companies’ growth in 2024. Additionally, an anticipated reduction in raw material costs should aid the bottom line of the industry participants. A surge in the e-commerce business has also proved beneficial.
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. Also, 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 #71. This rank places it in the top 28% 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.
Given the industry’s bright near-term prospects, we will present a few stocks worth considering for your portfolio. But before that, it is worth taking a look at the industry’s stock market performance and current valuation.
Industry Outperforms Sector But Lags S&P
The Zacks Manufacturing – General Industrial industry has outperformed the broader sector but underperformed the Zacks S&P 500 composite index over the past year.
Over this period, the industry has appreciated 15% compared with the sector and the S&P 500 Index’s growth of 10.4% and 20.8%, 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 21.15X compared with the S&P 500’s 20.52X. It is also above the sector’s P/E ratio of 17.21X.
Over the past five years, the industry has traded as high as 26.92X, as low as 15.92X and at the median of 20.72X, as the chart below shows.
Price-to-Earnings Ratio
Price-to-Earnings Ratio
4 Manufacturing-General Industrial Stocks Leading the Pack
Parker-Hannifin: Based in Cleveland, OH, this company is a diversified manufacturer of motion and control technologies and systems globally. It is benefiting from steady demand across end markets and higher orders. Strong momentum in the commercial aftermarket is aiding the Aerospace Systems segment, whereas effective cost-management actions are driving its Diversified Industrial unit. Synergies from the Meggitt buyout (September 2022) and benefits from the Win strategy have also been supporting its growth.
Parker-Hannifin reported better-than-expected results in each of the trailing four quarters, the earnings surprise being 14.4%, on average. PH’s bottom-line estimates have improved 2.7% for fiscal 2024 (ending June 2024) in the past 60 days. Shares of the company have gained 45.3% in the past year.
Price and Consensus: PH
IDEX: Headquartered in Northbrook, IL, this is an applied solutions company specializing 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. The company stands to benefit from a diversified business structure, a solid product portfolio, execution abilities and growth investments in the quarters ahead. Also, its STC Material acquisition (completed in December 2023) is expected to boost its position in the material sciences market.
IEX reported better-than-expected results in each of the trailing four quarters, the earnings surprise being 4.9%, on average. The company’s earnings estimates have improved 0.4% for 2024 in the past 60 days. Although shares of the company have declined 2.5% in the past year, it has recovered 3.8% in the past month.
Price and Consensus: IEX
Applied Industrial Technologies: Based in Cleveland, OH, the company is a distributor of value-added industrial products — including engineered fluid power components, bearings, specialty flow-control solutions and power transmission products. It is poised to benefit from strength across the food and beverage, lumber and wood, mining, pulp and paper, energy, utilities and refining end markets. Also, AIT’s product development initiative, buyouts and shareholder-friendly policies raise its attractiveness. For fiscal 2024, Applied Industrial predicts year-over-year sales growth of 1-3%.
The company reported better-than-expected results in each of the last four quarters, the earnings surprise being 10.4%, on average. In the past 60 days, the company’s earnings estimates have been unchanged for fiscal 2024 (ending June 2024). It has gained 25.7% in the past year.
Price and Consensus: AIT
Flowserve: Based in Irving, TX, the company is a leading manufacturer and aftermarket service provider of comprehensive flow-control systems globally. It is thriving on the back of record booking levels due to strong manufacturing, repair and operations, and aftermarket activity. Solid operational execution, pricing actions and improving supply chains are aiding the company’s margins.
FLS reported better-than-expected results in each of the trailing four quarters, the earnings surprise being 27.3%, on average. Flowserve’s bottom-line estimates have improved 0.8% for 2024 in the past 60 days. Shares of the company have gained 17.6% in the past year.
Price and Consensus: FLS
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4 Industrial Manufacturing Stocks to Gain From Enhanced Supply Chains
The Zacks Manufacturing – General Industrial industry is poised for growth on the back of easing supply-chain disruptions. Despite a slowdown in manufacturing activities, strength across prominent end markets should help the industry stay afloat.
Investments in product development and technological advancements, and focus on expanding operations through strategic acquisitions are expected to foster growth of the industry. Parker-Hannifin Corporation (PH - Free Report) , IDEX Corporation (IEX - Free Report) , Applied Industrial Technologies, Inc. (AIT - Free Report) and Flowserve Corporation (FLS - Free Report) are a few industry participants that might capitalize on the prevalent opportunities.
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 has been weighing on demand in the industry. Per the Institute for Supply Management’s (“ISM”) report, in January, the Manufacturing Purchasing Manager’s Index touched 49.1%, contracting for the 15th consecutive month. A figure less than 50% indicates a contraction in manufacturing activity. However, the manufacturing sector has been showing signs of gradual improvement. In January, the New Order Index increased 4.7 percentage points from December 2023. The uptick in new orders, in conjunction with the slowdown in inflation, augurs well for industrial manufacturing companies.
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 16th straight month in January. Easing supply-chain issues should support industrial manufacturing companies’ growth in 2024. Additionally, an anticipated reduction in raw material costs should aid the bottom line of the industry participants. A surge in the e-commerce business has also proved beneficial.
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. Also, 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 #71. This rank places it in the top 28% 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.
Given the industry’s bright near-term prospects, we will present a few stocks worth considering for your portfolio. But before that, it is worth taking a look at the industry’s stock market performance and current valuation.
Industry Outperforms Sector But Lags S&P
The Zacks Manufacturing – General Industrial industry has outperformed the broader sector but underperformed the Zacks S&P 500 composite index over the past year.
Over this period, the industry has appreciated 15% compared with the sector and the S&P 500 Index’s growth of 10.4% and 20.8%, 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 21.15X compared with the S&P 500’s 20.52X. It is also above the sector’s P/E ratio of 17.21X.
Over the past five years, the industry has traded as high as 26.92X, as low as 15.92X and at the median of 20.72X, as the chart below shows.
Price-to-Earnings Ratio
Price-to-Earnings Ratio
4 Manufacturing-General Industrial Stocks Leading the Pack
Each of the companies mentioned below carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Parker-Hannifin: Based in Cleveland, OH, this company is a diversified manufacturer of motion and control technologies and systems globally. It is benefiting from steady demand across end markets and higher orders. Strong momentum in the commercial aftermarket is aiding the Aerospace Systems segment, whereas effective cost-management actions are driving its Diversified Industrial unit. Synergies from the Meggitt buyout (September 2022) and benefits from the Win strategy have also been supporting its growth.
Parker-Hannifin reported better-than-expected results in each of the trailing four quarters, the earnings surprise being 14.4%, on average. PH’s bottom-line estimates have improved 2.7% for fiscal 2024 (ending June 2024) in the past 60 days. Shares of the company have gained 45.3% in the past year.
Price and Consensus: PH
IDEX: Headquartered in Northbrook, IL, this is an applied solutions company specializing 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. The company stands to benefit from a diversified business structure, a solid product portfolio, execution abilities and growth investments in the quarters ahead. Also, its STC Material acquisition (completed in December 2023) is expected to boost its position in the material sciences market.
IEX reported better-than-expected results in each of the trailing four quarters, the earnings surprise being 4.9%, on average. The company’s earnings estimates have improved 0.4% for 2024 in the past 60 days. Although shares of the company have declined 2.5% in the past year, it has recovered 3.8% in the past month.
Price and Consensus: IEX
Applied Industrial Technologies: Based in Cleveland, OH, the company is a distributor of value-added industrial products — including engineered fluid power components, bearings, specialty flow-control solutions and power transmission products. It is poised to benefit from strength across the food and beverage, lumber and wood, mining, pulp and paper, energy, utilities and refining end markets. Also, AIT’s product development initiative, buyouts and shareholder-friendly policies raise its attractiveness. For fiscal 2024, Applied Industrial predicts year-over-year sales growth of 1-3%.
The company reported better-than-expected results in each of the last four quarters, the earnings surprise being 10.4%, on average. In the past 60 days, the company’s earnings estimates have been unchanged for fiscal 2024 (ending June 2024). It has gained 25.7% in the past year.
Price and Consensus: AIT
Flowserve: Based in Irving, TX, the company is a leading manufacturer and aftermarket service provider of comprehensive flow-control systems globally. It is thriving on the back of record booking levels due to strong manufacturing, repair and operations, and aftermarket activity. Solid operational execution, pricing actions and improving supply chains are aiding the company’s margins.
FLS reported better-than-expected results in each of the trailing four quarters, the earnings surprise being 27.3%, on average. Flowserve’s bottom-line estimates have improved 0.8% for 2024 in the past 60 days. Shares of the company have gained 17.6% in the past year.
Price and Consensus: FLS