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U.S. Manufacturing Expands to a Three-Year High: 5 Winners

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The U.S. manufacturing sector expanded yet again in the month of February. The sector has been performing well ever since the economy started reopening following the COVID-19 induced lockdown. February’s rise in manufacturing activity marks the ninth straight month of gains for the sector, according to the Institute for Supply Management (ISM).

One of the major reasons behind the rise is that people are spending a lot more on goods compared to services following the pandemic, as a result of which they are shelling out more on goods

Manufacturing Sector Making Speedy Recovery

According to the ISM report released on Mar 1, Manufacturing PMI hit a three-year high of 60.8%, adding 2.1% to its January reading of 58.7%. February’s consensus estimate for manufacturing PMI was 58.7%.

Interestingly, the reading is also the same as the reading of February 2018. The rise indicates overall expansion for the economy for the ninth straight month after contracting in March, April and May 2020 due to the coronavirus pandemic. The ISM PMI has remained above 50 since June 2020. Anything above 50% indicates expansion in manufacturing activities.

Other indexes within the PMI like the New Orders Index increased 3.7% from January to 64.8%. The Production Index increased 2.5% to 63.2% from January’s reading of 60.7%. The Employment Index gained 1.8% to a reading of 54.4% from 52.6% in January.

Manufacturing Activity Poised to Grow

Manufacturing activity has been gathering steam ever since the economy reopened and started this year on a high following the coronavirus vaccine rollout. The vaccination drive is in full swing and at the same time, new cases and deaths have been on the decline over the past few weeks.

Moreover, the COVID-19 vaccine developed by Johnson & Johnson, Inc. (JNJ) last week became the third vaccine to get approval for emergency use, which will further speed up the immunization drive. As more people start getting vaccinated they will feel confident, and further help the manufacturing sector.

Also, the Fed recently took the decision not to change the interest rate, which is as low as 0-0.25%. This will continue to significantly reduce expenditure on capital goods, and simultaneously make U.S. currency cheaper and its manufactured products more competitive in the international market.

Moreover, the fresh round of coronavirus relief package is expected to further give a boost to the economy, thus helping the manufacturing sector.

Our Choices

Given this scenario, it is ideal to invest in these five stocks. All these stocks have a Zacks Rank #1 (Strong Buy) or 2 (Buy) and assure good returns. You can see the complete list of today’s Zacks #1 Rank stocks here.

Caterpillar Inc. (CAT - Free Report) is the largest global manufacturer of construction and mining equipment. Given that it serves a gamut of sectors — infrastructure, construction, mining, oil & gas and transportation — the company is considered a bellwether of the global economy.

The company’s expected earnings growth rate for the current year is 22%. The Zacks Consensus Estimate for current-year earnings has improved 6.2% over the past 60 days. The company has a Zacks Rank #2

Dover Corporation (DOV - Free Report) is an industrial conglomerate producing a wide range of specialized industrial products and manufacturing equipment.

The company’s expected earnings growth rate for the current year is 13.8%. The Zacks Consensus Estimate for current-year earnings has improved 4.2% over the past 60 days. The company has a Zacks Rank #2.

Chart Industries, Inc. (GTLS - Free Report) is a leading independent global manufacturer of highly engineered equipment servicing end market applications in energy, industry, life sciences and respiratory healthcare with a unique business portfolio. 

The company’s expected earnings growth rate for the current year is 35.2%. The Zacks Consensus Estimate for current-year earnings has improved 10.5% over the past 60 days. The company has a Zacks Rank #2.

Graco Inc. (GGG - Free Report)  manufactures, designs and sells equipment and systems used to measure, move, control, spray and dispense fluid as well as powder materials. 

The company’s expected earnings growth rate for the current year is 20%. The Zacks Consensus Estimate for current-year earnings has improved 12.5% over the past 60 days. The company has a Zacks Rank #2.

Deere & Company (DE - Free Report) is the world’s largest producer of agricultural equipment, manufacturing agricultural machinery since 1837 under the iconic John Deere brand with its signature green and yellow color scheme.

The company’s expected earnings growth rate for the current year is 80.3%. The Zacks Consensus Estimate for current-year earnings has improved 21.5% over the past 60 days. The company has a Zacks Rank #2.

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