The U.S. industrial sector has done fairly well this year defying the deadly pandemic. Within the industrial sector, the manufacturing industry has been a turning point for U.S. economic recovery. U.S. manufacturing struggled throughout 2019 from a prolonged trade and tariff tussle between the United States and China. However, it is showing signs of a V-shaped recovery this year, defying coronavirus-induced devastations.
Several industrial stocks have skyrocketed in this year. Investment in such stocks that sport a top Zacks Rank and have strong upside left for 2021 may be fruitful at this stage.
Industrial Sector Performs Well Under Pandemic
The industrial sector has recovered to a great extent from May to November after plunging 16.5% from February to April with the global outbreak of coronavirus. The United States witnessed two months of lockdowns from mid-March to mid-May.
The Fed reported that the index of industrial production at the end of November came in at just 5% below the pre-pandemic level of February. Notably, barring September, industrial production expanded each and every month during May to November.
Strong performance by the manufacturing industries was the primary driver of better-than-expected industrial production. Manufacturing output expanded in the last seven months. Moreover, the manufacturing purchasing managers' index reported by the Institute of Supply Management came in above 50 from June to November. Any reading above 50 means expansion in manufacturing activities.
Additionally, in the past three months, the industrial sector, one of the 11 broad sectors of the S&P 500 Index gained 12.9%, second only to a 24% jump of the energy sector. The benchmark itself grew just 7.8% in the past three months.
The FDA has already approved the first COVID-19 vaccine. The FDA authorization of a COVID-19 vaccine this year means that the economy will reopen and gradually operate at the pre-pandemic level. The reopening or cyclical sectors like industrials are likely to be the major stock markets gainer as more parts of the economy reopen.
The manufacturing sector too should strengthen as export demand for high-tech industrial products of the country will likely increase. Finally, the Fed has decided to keep the benchmark interest rate as low as 0-0.25% for a longer period. A low interest rate will significantly reduce the cost of capital and make U.S. currency cheaper in the foreign exchange market, making the country's products more competitively priced.
Our Top Picks
We have narrowed down our search to five industrial stocks with strong growth potential for 2021 and have witnessed solid earnings estimate revision within the last 60 days. Each of our picks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see
. the complete list of today’s Zacks #1 Rank stocks here
The chart below shows the price performance of our five picks year to date.
Deere & Co. ( DE Quick Quote DE - Free Report) manufactures and distributes farm equipment worldwide. It operates through three segments: Agriculture and Turf, Construction and Forestry, and Financial Services. The Zacks Rank #1 company has an expected earnings growth rate of 46% for the current year (ending October 2021). The Zacks Consensus Estimate for its current-year earnings has improved 0.4% over the last 30 days. The stock price has soared 51.2% year to date. Altra Industrial Motion Corp. ( AIMC Quick Quote AIMC - Free Report) designs, produces and markets a range of electromechanical power transmission motion control products for use in various motion-related applications, and high-volume manufacturing and non-manufacturing processes worldwide. It operates through two segments, Power Transmission Technologies and Automation & Specialty.
The Zacks Rank #1 company has an expected earnings growth rate of 17.4% for next year. The Zacks Consensus Estimate for its next-year earnings has improved 21.3% over the last 60 days. The stock price has jumped 49.8% year to date.
Packaging Corporation of America ( PKG Quick Quote PKG - Free Report) manufactures and sells containerboard and corrugated packaging products in the United States. It operates through Packaging and Paper segments. The Zacks Rank #1 company has an expected earnings growth rate of 17.2% for next year. The Zacks Consensus Estimate for its next-year earnings has improved 22% over the last 60 days. The stock price has advanced 19.8% year to date. Regal Beloit Corp. ( RBC Quick Quote 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 Zacks Rank #2 company has an expected earnings growth rate of 20.2% for next year. The Zacks Consensus Estimate for its next-year earnings has improved 13.6% over the last 60 days. The stock price has climbed 38.2% year to date.
Graco Inc. ( GGG Quick Quote GGG - Free Report) designs, manufactures, and markets systems and equipment used to move, measure, control, dispense, and spray fluid and powder materials worldwide. The Zacks Rank #2 company has an expected earnings growth rate of 12.9% for next year. The Zacks Consensus Estimate for its next-year earnings has improved 12.4% over the last 60 days. The stock price has appreciated 34.8% year to date. Zacks Names “Single Best Pick to Double”
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