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4 Top Industrial Stocks to Buy as Sector Gradually Recovers

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The U.S Manufacturing sector has been showing signs of improvement for the past three months on gradual recovery of economic activities from the coronavirus pandemic-induced disruptions. The sector has witnessed pick-up in manufacturing activities, triggered by the steady resumption of business and factory operations. The Zacks Industrial Products sector has appreciated 12.6% over the past three months, outperforming the S&P 500 Index’s gain of 7.3%.

Manufacturing Activities Gathering Steam

Per the Institute for Supply Management, the U.S Manufacturing Purchasing Managers’ Index (PMI) displayed 56% growth in August, up from July’s reading of 54.2%. Notably, a reading above 50 denotes expansion in activity. The August PMI is the highest so far this year and marks expansion in the sector for three straight months. Of the 18 manufacturing industries, 15 reported growth in August, with improvement in orders, production and employment index.

The manufacturing sector, which had already been battling waning global demand and the long-standing U.S.-China trade tensions, bore the brunt of the pandemic-related supply-chain disruptions earlier this year. The manufacturing PMI remained below the 50 mark from March to May. In April, the PMI index slipped to 41.5%, marking the lowest reading since April 2009,. Therefore, the turnaround of the sector instills hope for the overall economic growth, as the manufacturing sector accounts for 11% of the U.S. economy.

According to the Federal Reserve, industrial production inched up 0.4% in August. The industrial production grew for the fourth straight month, after suffering a 12.9% decline in April. Manufacturing output continues to recover, rising 1% in August. Also, capacity utilization for the industrial sector increased to 71.4% month over month in August.

Moreover, the IHS Markit reported that the US Manufacturing PMI rose to 53.5 in September from August’s 19-month high level of 53.1. The September reading underlines the strongest expansion in factory activity since January 2019.

Other Tailwinds

Per the Labor department, total U.S non-farm payroll increased by 1.4 million 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.

While the recovery of global economic activities will fuel export demand for manufacturing products, the government’s financial stimulus packages and rate cuts will fortify the sector in the near term. Apart from this, companies in the sector are benefiting from the e-commerce boom, as well as the solid packaging demand for essential products amid the pandemic. Moreover, manufacturing companies are focusing on supporting margins through cost-control actions as well as increased productivity.

Our Picks

We have picked four Industrial Products stocks with positive earnings growth projections for the current year, and have been witnessing positive earnings growth revisions, of late. 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.

The chart below shows the price performance of our four stocks in the past three months.

Astec Industries, Inc. (ASTE - Free Report) : This Chattanooga, TN-based company sports a Zacks Rank #1, with a VGM score B, at present. The Zacks Consensus Estimate for current-year earnings moved 50% north over the past 60 days and is currently pegged at $1.76. The current-year earnings estimate suggests year-over-year growth of 13.5%. The company has a trailing four-quarter earnings surprise of 124.3%, on average. The stock has gained 10.9% in the past three months.

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 2020 earnings is pinned at $1.82, indicating a year-over-year surge of 130.4%. The consensus mark has been revised upward by 143% in the past 60 days. The company has a trailing four-quarter average earnings surprise of 102.8%. Over the past three months, shares of the company have rallied 83.4%.

Sealed Air Corporation (SEE - Free Report) : This Charlotte, NC-based company currently carries a Zacks Rank of 2 and has a VGM score B. Over the past 60 days, the Zacks Consensus Estimate for the ongoing year’s earnings moved 9.4% upward and is currently pegged at $2.92. The consensus mark calls for a year-over-year increase of 3.5%. The company has a trailing four-quarter average earnings surprise of 17.8%. The company’s shares have appreciated 19% in three months’ time.

Berry Global Group, Inc. (BERY - Free Report) : Based-in Evansville, IN, this company currently holds a Zacks Rank #2 and has a VGM score A. The Zacks Consensus Estimate for fiscal 2020 earnings is pegged at $4.51, indicating a year-over-year jump of 32.3%. The consensus mark has moved 10.5% north in the past 60 days. The company has a trailing four-quarter average earnings surprise of 16.3%. Over the past three months, the stock has gained 13.9%.

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