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4 Industrial Stocks to Soar as Confidence on Economic Recovery Grows

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The U.S. economy suffered a jolt following the outbreak of Covid-19 in the first quarter of 2020. The country witnessed GDP contraction, soft demand and supply environment at home, weakness in international trade and rise in fiscal deficits.

In the adverse environment, corporate profits across sectors, including industrial products, oil & gas, transportation, construction and finance shrunk. Investors’ confidence was badly shaken, as evident from 26% decline of the NYSE in the first quarter of the year. The S&P 500 and the Nasdaq shed 20% and 14.2%, respectively, during this period.

To deal with the pandemic-related havocs, the Federal Reserve lowered interest rate to nearly 0% in March, and recently has announced that the rate will remain at 0-0.25% for the near term. Also, multiple packages have been provided by the government. On the corporate level, changes in production and marketing operations, reduction of costs and adoption of digital means of doing businesses have become priorities. With these and several other measures in action, an economic revival seems to be on the horizon.

Is Economic Recovery Underway?

Confidence is high.

Multiple leading indicators are pointing toward strengthening economy. Importantly, the country’s GDP improved 33.4% (annual rate) in the third quarter, per the latest report by the Bureau of Economic Analysis. This compares favorably with 31.4% decline in the second quarter. The improvement reflects growth in exports, residential and non-residential fixed investment, personal consumption expenditures and private inventory investment.

Consistent fall in unemployment rate in the country too reflects that economic activities are on track for a recovery. The Bureau of Labor Statistics’ data released this month shows that unemployment rate was 6.7% in November compared with 14.7% in April. Job gains occurred in multiple industries including transportation and warehousing, healthcare, manufacturing and construction.

Operations in the housing market have also improved. Housing starts (privately owned) in November reflected an increase of 1.2% from the previous month. Notably, month-over-month change was a decline of 26.4% in April. Single family-related housing starts also grew 0.4% month over month in November against 22.8% fall recorded in April.

It is worth noting here that the U.S. stock indexes gained strength post the first quarter of 2020, with the NYSE surging 39.8%, Nasdaq 65.9% and the S&P 500 42.8%.

The International Monetary Fund anticipates 2.6% growth in the United States’ output in 2021 against 4.7% decline expected for 2020.

Per our latest Earning Trend report, the year-over-year earnings prospects for 14 out of 16 Zacks sectors have improved for first-quarter 2021 compared with fourth-quarter 2020.

We here narrow down our discussion to the Zacks Industrial Products sector, with earnings growth of 11.1% expected for the first quarter of 2021 on revenue increase of 3.4%. Notably, the sector’s earnings and revenues are expected to decline 9.6% and 3%, respectively, in the fourth quarter of 2020.

Industrial Stocks to Gain From Economic Revival

This sector seems rightfully placed to benefit from strengthening economic activities. Key indicators supporting this belief include the industrial production and the ISM’s manufacturing index. The U.S. industrial production grew 0.4% month over month in November while the same declined 12.7% in April. Also, the Manufacturing PMI was 57.5% in November, way above 41.5% in April. An index above 50% indicates expansion in manufacturing activities while below 50% indicates contraction.

We have chosen four potential winners from the industrial space that are likely to flourish as confidence about economic recovery grows. The stocks selected carry a Zacks Rank #2 (Buy), VGM Score of A or B with Momentum Score of either A or B, market capitalization greater than $2 billion and year-to-date price changes of more than 5%.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Parker-Hannifin Corporation (PH - Free Report) : The Cleveland, OH-based company is a specialist in manufacturing motion & control technologies and systems. It products and solutions are widely used in aerospace, mobile and industrial markets. Its market capitalization presently is $34.5 billion.

The company is well placed to benefit from strengthening businesses in multiple markets including rail and power generation, life science and semiconductor. Its focus on investing in growth opportunities will be top-line driver in the quarters ahead.

The stock presently has a VGM Score of B, and a Momentum Score of B. Year to date, the stock has gained 30.9% compared with the Zacks Manufacturing - General Industrial industry’s growth of 8.6%. Its earnings estimates have been raised 13.8% for fiscal 2021 (ending June 2021) and 6.8% for fiscal 2022 (ending June 2022) in the past 60 days.

Dover Corporation (DOV - Free Report) : The company manufactures wide range of manufacturing equipment and industrial products. Its offerings are used in transport, pumps and process solutions, beverage, foodservice and various other end markets. It is based in New York, and presently has a market capitalization of $17.8 billion.

Improvement in defense & aerospace, heat exchangers, biopharma, and marking & coding businesses is likely to be beneficial. Also, surge in e-commerce business, focus on product development and other such actions are boon.

The stock currently has a VGM Score and a Momentum Score of B. Year to date, the stock has gained 7.3% compared with the Zacks Manufacturing - General Industrial industry’s increase of 8.6%. In the past 60 days, the company’s earnings estimates increased 0.4% for 2020 and 1.1% for 2021.

MSM Industrial Direct Co. Inc. (MSM - Free Report) : The company is a distributor of maintenance, repair, and operations and metalworking products. It is based in Melville, NY and presently has a market capitalization of $4.8 billion.

Efforts to expand market reach through digital means and investments in other growth opportunities as well as strengthening janitorial and safety products businesses places the company well for growth. Also, a solid customer base is a boon.

The stock has a VGM Score of A presently, while its Momentum Score is B. Year-to-date, the stock has gained 9.3% compared with the Zacks Industrial Services industry’s growth of 48.9%. In the past 60 days, the company’s earnings estimates have increased 4.3% for fiscal 2021 (ending August 2021) and 3.3% for fiscal 2022 (ending August 2022).

Franklin Electric Co., Inc. (FELE - Free Report) : Based in Fort Wayne, IN, the company makes and distributes fuel and water pumping systems. It products are mainly used in power utility, telecommunications, water and wastewater and various other end markets. Its market capitalization is currently $3.2 billion.

Expertise in innovating fueling system, solid product offerings, extensive geographical presence and acquisitive nature are competitive advantages for the company. Its focus on expanding businesses in filtration, treatment and irrigation arenas will benefit it.

The stock’s VGM Score is A while its Momentum Score is B. Year to date, the stock has jumped 20.6% compared with the Zacks Manufacturing - Electronics industry’s growth of 18%. In the past 60 days, the company’s earnings estimates have increased 12.2% for 2020 and 9.5% for 2021.

Franklin Electric Co., Inc. Price and Consensus

Franklin Electric Co., Inc. Price and Consensus

Franklin Electric Co., Inc. price-consensus-chart | Franklin Electric Co., Inc. Quote

Zacks Top 10 Stocks for 2021

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