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The Zacks Manufacturing – General Industrial industry comprises companies that are engaged in producing a wide range of industrial equipment tools.
Some companies sell 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, safety products and linear motion components. In addition to these, industrial manufacturing companies reconstruct and assemble pumps, valves, speed reducers and hydraulic motors.
These companies provide services to original equipment manufacturing, and maintenance, repair and overhaul customers. These end users belong to different types of industries, such as mining, oil and gas, forest products, agriculture and food processing, fabricated metals, chemicals and petrochemicals, transportation and utilities.
Here are the industry’s three major themes:
Of late, the U.S. industrial manufacturing companies have been gaining from rise in manufacturing activity, the government's emphasis on infrastructure development and technological advancement in manufacturing processes. In addition, a surge in e-commerce business, coupled with healthy job additions in the manufacturing industry, has opened up opportunities for the firms. Notably, per the Department of Labor’s latest report published on Jul 5, the manufacturing domain added 17,000 new jobs in June. Also, per the latest Manufacturing ISM Report published on Jul 1, the Purchasing Managers’ Index for June increased 51.7%. Further, the metric registered readings of 52.1% and 52.8% in May and April, respectively. Notably, any reading above 50 indicates the manufacturing sector is experiencing overall growth. Against this backdrop, we believe President Trump’s business-friendly policies, such as deregulatory measures, massive tax overhaul and higher government spending are likely to continue aiding the industrial manufacturing companies.
Tariffs imposed by the U.S. administration on steel and aluminum, and against Chinese imported products in fields of machinery are a major concern for the U.S. manufacturing companies. Notably, imposition of billions of dollars in punitive tariffs by Washington and Beijing on each other’s’ products is resulting in material cost inflation and pulling down margins of many manufacturing companies. As a matter of fact, the trade tariffs have created an uncertain demand environment for U.S. industrial manufacturing products. These are hurting U.S. industrial exports. In addition, a stronger U.S. dollar is currently weighing on the overseas trading arms of these companies.
Despite healthy job additions in the manufacturing industry, companies are experiencing shortage of skilled laborers, and high-wage costs. In addition, the state of affairs has turned complex for U.S. manufacturers, owing to the ongoing issues within the trucking industry. The industry is currently experiencing shortage of truck drivers. Owing to these, U.S. manufactures are now facing supply-side challenges. These setbacks may continue to aggravate costs and mar profits of industrial manufacturing companies in the near future.
Zacks Industry Rank Indicates Dim Prospects
The Manufacturing – General Industrial industry is a 34-stock group within the broader Zacks Industrial Products sector. The industry currently carries a Zacks Industry Rank #172, which places it in the bottom 33% 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 gloomy 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 bottom 50% of the Zacks-ranked industries is a result of the negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are keeping less faith in this group's earnings growth potential. Notably, the industry’s earnings estimates for the past year are down roughly 2.8% year over year.
Despite the grim outlook, we present a few stocks that have strong earnings growth prospects. Before we discuss the stocks, it’s worth taking a look at the industry’s shareholder returns and current valuation first.
Industry Outperforms Sector & S&P 500
The Zacks Manufacturing – General Industrial industry has outperformed both the S&P 500 and its sector in the past year. While stocks in this industry have collectively gained 8.5%, the S&P 500 have rallied 6%, whereas the Zacks Industrial Products sector has declined 5.6%.
One-Year Price Performance
Manufacturing – General Industrial Industry’s Valuation
EV/EBITDA ratio is commonly used for valuing manufacturing stocks.
The industry’s forward 12-month EV/EBITDA ratio is 11.61. This clearly shows that the industry is trading below the S&P 500’s forward 12-month EV/EBITDA ratio of 12 and the sector’s 14.04.
Over the past five years, the industry has traded at the highest level of 12.28x forward 12-month EV/EBITDA and the lowest level of 8.25x. The median level, over the same period, was 10.10x.
Manufacturing–General Industrial Industry’s Valuation Versus Sector
Manufacturing–General IndustrialIndustry’s Valuation Versus S&P 500
Bottom Line
On account of the prevalent headwinds, we believe that near-term investment in industry players may not be prudent. The majority of the stocks within this 34-stock industry currently carry a Zacks Rank #3 (Hold) or 4 (Sell) or 5 (Strong Sell).
Despite the industry’s poor rank, we present some stocks from the industry, which are likely to offer good returns particularly in difficult times.
In the past 60 days, the Zacks Consensus Estimate for earnings has increased 0.4% to $2.37 for 2019.
Price and Consensus: DXPE
Ingersoll-Rand plc (IR - Free Report) : The stock of this Dublin, Ireland-based company currently carries a Zacks Rank #2. Year to date, the stock has returned 38.8%.
The Zacks Consensus Estimate for 2019 earnings has risen 0.5% to $6.39 in the past 60 days.
Price and Consensus: IR
Dover Corporation (DOV - Free Report) : The stock of this Illinois-based company currently carries a Zacks Rank #2. The stock has gained 38% so far this year.
In the past 60 days, the Zacks Consensus Estimate for 2019 earnings has increased 0.3% to $5.84 for 2019.
Price and Consensus: DOV
Roper Technologies, Inc. (ROP - Free Report) : The stock of this Sarasota, FL-based company carries a Zacks Rank #2. Year to date, the company’s stock has risen 37.6%.
In the past 60 days, the Zacks Consensus Estimate for its 2019 earnings has increased 2.4% to $13.00 for 2019.
Price and Consensus: ROP
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Image: Bigstock
Industrial Manufacturing Outlook: Near-Term Prospects Bleak
The Zacks Manufacturing – General Industrial industry comprises companies that are engaged in producing a wide range of industrial equipment tools.
Some companies sell 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, safety products and linear motion components. In addition to these, industrial manufacturing companies reconstruct and assemble pumps, valves, speed reducers and hydraulic motors.
These companies provide services to original equipment manufacturing, and maintenance, repair and overhaul customers. These end users belong to different types of industries, such as mining, oil and gas, forest products, agriculture and food processing, fabricated metals, chemicals and petrochemicals, transportation and utilities.
Here are the industry’s three major themes:
Zacks Industry Rank Indicates Dim Prospects
The Manufacturing – General Industrial industry is a 34-stock group within the broader Zacks Industrial Products sector. The industry currently carries a Zacks Industry Rank #172, which places it in the bottom 33% 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 gloomy 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 bottom 50% of the Zacks-ranked industries is a result of the negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are keeping less faith in this group's earnings growth potential. Notably, the industry’s earnings estimates for the past year are down roughly 2.8% year over year.
Despite the grim outlook, we present a few stocks that have strong earnings growth prospects. Before we discuss the stocks, it’s worth taking a look at the industry’s shareholder returns and current valuation first.
Industry Outperforms Sector & S&P 500
The Zacks Manufacturing – General Industrial industry has outperformed both the S&P 500 and its sector in the past year. While stocks in this industry have collectively gained 8.5%, the S&P 500 have rallied 6%, whereas the Zacks Industrial Products sector has declined 5.6%.
One-Year Price Performance
Manufacturing – General Industrial Industry’s Valuation
EV/EBITDA ratio is commonly used for valuing manufacturing stocks.
The industry’s forward 12-month EV/EBITDA ratio is 11.61. This clearly shows that the industry is trading below the S&P 500’s forward 12-month EV/EBITDA ratio of 12 and the sector’s 14.04.
Over the past five years, the industry has traded at the highest level of 12.28x forward 12-month EV/EBITDA and the lowest level of 8.25x. The median level, over the same period, was 10.10x.
Manufacturing–General Industrial Industry’s Valuation Versus Sector
Manufacturing–General IndustrialIndustry’s Valuation Versus S&P 500
Bottom Line
On account of the prevalent headwinds, we believe that near-term investment in industry players may not be prudent. The majority of the stocks within this 34-stock industry currently carry a Zacks Rank #3 (Hold) or 4 (Sell) or 5 (Strong Sell).
Despite the industry’s poor rank, we present some stocks from the industry, which are likely to offer good returns particularly in difficult times.
Here we discuss in brief four stocks:
DXP Enterprises, Inc. (DXPE - Free Report) : The stock of this Houston, TX-based company currently carries a Zacks Rank #2 (Buy). The company has rallied 23.2% so far in 2019. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
In the past 60 days, the Zacks Consensus Estimate for earnings has increased 0.4% to $2.37 for 2019.
Price and Consensus: DXPE
Ingersoll-Rand plc (IR - Free Report) : The stock of this Dublin, Ireland-based company currently carries a Zacks Rank #2. Year to date, the stock has returned 38.8%.
The Zacks Consensus Estimate for 2019 earnings has risen 0.5% to $6.39 in the past 60 days.
Price and Consensus: IR
Dover Corporation (DOV - Free Report) : The stock of this Illinois-based company currently carries a Zacks Rank #2. The stock has gained 38% so far this year.
In the past 60 days, the Zacks Consensus Estimate for 2019 earnings has increased 0.3% to $5.84 for 2019.
Price and Consensus: DOV
Roper Technologies, Inc. (ROP - Free Report) : The stock of this Sarasota, FL-based company carries a Zacks Rank #2. Year to date, the company’s stock has risen 37.6%.
In the past 60 days, the Zacks Consensus Estimate for its 2019 earnings has increased 2.4% to $13.00 for 2019.
Price and Consensus: ROP
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Click here for the 6 trades >>