Earlier this year, the COVID-19 pandemic dealt a severe blow to the manufacturing sector which had already been reeling under waning global demand and the long-standing U.S.-China trade tensions. The sector had to bear the brunt of the pandemic-induced supply-chain disruptions, factory closures and bleak demand as well volatility in the energy market. However, per recent data, the sector seems to be coming out of the crisis, on gradual resumption of the global economic activities and reopening of businesses. Various government stimulus packages are bolstering the sector’s performance.
Pick-Up in Manufacturing Activities
Per the Institute for Supply Management, the U.S Manufacturing Purchasing Managers’ Index (PMI) showed 56% growth in August, up from July’s reading of 54.2%. The August PMI is the highest so far this year and marks expansion in the sector for three straight months. Notably, a reading above 50 denotes expansion in activity. This is a major recovery from the PMI reading of 41.5% in April mainly due to the COVID-19 crisis. This was the PMI’s lowest reading since April 2009 when it recorded 39.9%.
Of the 18 manufacturing industries, 15 reported growth in August. The New Orders Index registered 67.6% growth in August, up from July’s index of 61.5%. The Production Index came in at 63.3% up from July’s 62.1%. The Employment Index grew to 46.4% in August from 44.3% in July. Therefore, the recent revival of the sector instills hope for the overall economic growth as the manufacturing sector accounts for 11% of the U.S. economy.
Meanwhile, the Official NBS Manufacturing PMI in China came in at 51.0 in August, marking the sixth consecutive month of expansion in factory activity as the economy recovers from the pandemic. Factory output and new orders also continued to grow. Moreover, China’s stimulus program on new infrastructure and urbanization will boost manufacturing activities in the near term.
The IHS Markit Eurozone Manufacturing PMI came in at 51.7 in August after recording 51.8 in July. Manufacturing output grew for the second successive month in August and accelerated to reach its highest level in more than two years.
Improving Job Data
Per the Labor department, total U.S non-farm payroll added 1.4 million jobs in August compared with the 1.7 million reported in July and a record high of 4.8 million in June. The unemployment rate fell to 8.4% in August, reflecting declines for four consecutive months. More than 22 million jobs were lost in March and April due to the pandemic. These improvements in the job market reflect the continued resumption of economic activity.
Over the past year, the Industrial Products sector has gained 7.4% compared with the S&P 500’s growth of 13.5%.
Per the latest Earnings Trends report, earnings for the Industrial Products sector are expected to witness a year-over-year decline of 27% in the third quarter, which is a slight improvement from the 35.3% plunge witnessed during the second quarter. In the fourth quarter, the Industrial Products sector is expected to see a year-over-year drop of 19.4% in earnings. The sector’s earnings will likely be down 25.5% overall in 2020. However, the next year holds promise as the bottom line is projected to be up 19.7%.
Uncertainties related to the pandemic will keep weighing on the sector until the situation stabilizes. The companies in the sector are likely to face end-market pressure as customer spending is likely be restrained. Nevertheless, in these uncertain times, manufacturing companies are focusing on supporting margins through cost-control actions and increased productivity.
4 Industrial Stocks to Bet On
We have picked four Industrial Products stocks that are geared up to deliver solid third-quarter results despite the overall weakness in the sector. Our proprietary methodology comes in handy while zeroing in on these stocks. Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy), offer solid investment opportunities. You can see the complete list of today’s Zacks #1 Rank stocks here.
Further, these companies have healthy earnings growth projections for the current quarter, and have been witnessing positive earnings growth revisions lately. These stocks also have a four-quarter average earnings surprises history.
AGCO Corporation (AGCO - Free Report) : This Duluth, GA-based company sports a Zacks Rank #1 with a VGM score B, at present. The Zacks Consensus Estimate for current-quarter earnings moved 117% north over the past 60 days and is currently pegged at $1.02 per share. The third-quarter earnings estimate suggests year-over-year growth of 24.4%. The company has a trailing four-quarter earnings surprise of 409.5%, on average.
Superior Group of Companies, Inc. (SGC - Free Report) This Seminole, FL-based company currently flaunts a Zacks Rank #1 and has a VGM score B. The Zacks Consensus Estimate for September-end quarter earnings is pegged at 30 cents per share, indicating a year-over-year increase of 15.4%. The same has been revised upward by 150% in the past 60 days. The company has a trailing four-quarter average earnings surprise of 102.8%.
Silgan Holdings Inc. (SLGN - Free Report) : This Stamford, CT-based company currently holds a Zacks Rank #2 and has a VGM score B. The Zacks Consensus Estimate for the July-September quarter earnings is pinned at 93 cents, calling for year-over-year growth of 22.4%. The estimate has moved 16.3% north in 60 days’ time. The company has a trailing four-quarter average earnings surprise of 12.8%.
Sealed Air Corporation (SEE - Free Report) : This Charlotte, NC-based company currently carries a Zacks Rank of 2 and has a VGM score A. Over the past 60 days, the Zacks Consensus Estimate for the ongoing quarter’s earnings moved 4.7% upward and is currently pegged at 67 cents. The consensus mark suggests year-over-year growth of 4.7%. The company has a trailing four-quarter average earnings surprise of 17.8%.
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
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