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Buy 5 Manufacturing Stocks Ahead of Q3 Earnings Next Week

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The year 2020 is likely to remain coronavirus-stricken as the approval of a vaccine looks unlikely this year. The U.S. economy as well as the global economy has been suffering from coronavirus-induced devastations in the past eight months. However, in a pleasant surprise, U.S. manufacturing is headed toward a V-shaped recovery defying the pandemic.

Meanwhile, five manufacturing stocks with a favorable Zacks Rank are set to beat third-quarter earnings estimates next week. Investment in these stocks may be fruitful as an earnings beat is expected to drive their stock prices in the near future.

Manufacturing Sector in Q3

Per the Institute for Supply Management (ISM) manufacturing index, September saw the fifth consecutive month of a manufacturing uptrend after the index hit an 11-year low in April. The ISM manufacturing index came in at above 50 in all the three months of the third quarter. Notably, any reading above 50 indicates expansion in manufacturing activities.

The first round of fiscal stimulus for coronavirus-aid, popularly known as — the CARES Act —  terminated at the end of July. This indicates that the manufacturing industry, which constitutes around 12% of the U.S. GDP, is expanding even without a fresh stimulus.

Moreover, the Fed's decision to keep the benchmark interest rate as low as 0 - 0.25% and the central bank's lending facility to the Main Street especially to small businesses helped reviving the manufacturing industry.

Q3 Earnings Results So Far

The third-quarter earnings season has started on a positive note athough overall earnings are likely to remain negative this quarter. As of Oct 21, 84 S&P 500 companies have reported results. Total earnings of these companies are down 11.1% from the same period last year on 2.5% lower revenues, with 86.9% beating EPS estimates and 81% surpassing revenue estimates.

Meanwhile, for the quarter as a whole, total S&P 500 earnings are expected to decline 18.3% on 2.5% lower revenues. This would mean an improvement over an earnings decline of 22% year over year on 2.9% lower revenues, as projected before the reporting cycle.  

This also implies a marked improvement over second-quarter earnings that plunged 32.3% on 9.2% lower revenues. Notably, the first-quarter earnings of companies on the S&P 500 Index were down 13.5% on 1.4% higher revenues.

Notably, overall projections for third-quarter earnings have gradually improved since July, on the reopening of a large part of the U.S. economy. Importantly, the pace of improvement has started accelerating as companies have come up with better-than-expected results. (Read More: Exploring the Improving Q3 Earnings Picture)

Our Top Picks

We have narrowed down our search to five manufacturing stocks that are slated to release third-quarter earnings results next week. Each of these stocks carries a Zacks Rank #2 (Buy) and has a positive Earnings ESP. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Our research shows that for stocks with the combination of a Zacks Rank #3 (Hold) or better and a positive Earnings ESP, the chance of an earnings beat is as high as 70%. These stocks are anticipated to appreciate after earnings releases. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

The chart below shows the price performance of our five picks in the third quarter.

 

Stanley Black & Decker Inc. (SWK - Free Report) manufactures and provides tools (power and hand tools) and related accessories, healthcare solutions, electronic security solutions, engineered fastening systems and many more items and services worldwide.

The company has an Earnings ESP of +3.28%. The Zacks Consensus Estimate of Stanley Black & Decker for the current year has improved 5% over the last 30 days. It has a trailing four-quarter earnings surprise of 9.6%, on average. The company is set to release earnings results on Oct 27, before the opening bell.

Franklin Electric Co. Inc. (FELE - Free Report) designs, manufactures and distributes water and fuel pumping systems worldwide. It operates in three segments: Water Systems, Fueling Systems, and Distribution. The company has an Earnings ESP of +6.06%.

The Zacks Consensus Estimate of Franklin Electric for the current year has improved 1.6% over the last 30 days. It has a trailing four-quarter earnings surprise of 7.1%, on average. The company is set to release earnings results on Oct 27, before the opening bell.

IDEX Corp. (IEX - Free Report) operates as an applied solutions company worldwide. It operates through three segments: Fluid & Metering Technologies, Health & Science Technologies, and Fire & Safety/Diversified Products . The company has an Earnings ESP of +7.80%.

The Zacks Consensus Estimate of IDEX for the current year has improved 3.6% over the last 30 days. It has a trailing four-quarter earnings surprise of 3.7%, on average. The company is set to release earnings results on Oct 27, after the closing bell.

John Bean Technologies Corp. (JBT - Free Report) provides technology solutions to food and beverage industry and equipment and services to air transportation industries. The company operates through the JBT FoodTech and JBT AeroTech segments.

John Bean Technologies has an Earnings ESP of +2.84%. It has a trailing four-quarter earnings surprise of 28.5%, on average. The company is set to release earnings results on Oct 27, after the closing bell.

Regal Beloit Corp. (RBC - Free Report) designs, manufactures, and sells electric motors, electrical motion controls, and power generation and transmission products worldwide. It operates through four segments: Commercial Systems, Industrial Systems, Climate Solutions, and Power Transmission Solutions. The company has an Earnings ESP of +3.24%.

The Zacks Consensus Estimate of Regal Beloit for the current year has improved 1.5% over the last 30 days. It has a trailing four-quarter earnings surprise of 18.9%, on average. The company is set to release earnings results on Oct 28, after the closing bell.

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