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Buy these 5 Industrial Stocks That Outperformed S&P 500 YTD

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In 2020, the U.S manufacturing took a massive beating from the unprecedented circumstances stemming from the COVID-19 pandemic that impacted demand and disrupted its supply chain. The industrial companies had to temporarily suspend manufacturing activity due to low demand or to comply with government mandates. However, the sector regained its footing in mid-2020 as economies started reopening and businesses resumed operations. It has been gaining momentum ever since, with orders, production and employment garnering improvements.

Per the latest data from the Federal Reserve, U.S. industrial production increased 0.8% in May — the third straight month of growth. Manufacturing production advanced 0.9%, while production at mines rose 1.2%. This has been supported by the massive coronavirus relief stimulus, low interest rates, rapid pace of vaccine rollouts and higher demand for goods. Also, per the U.S. Census Bureau, new orders for manufactured durable goods in May increased 2.3% — registering growth for the 12th time in the last 13 months.

Improving commodity prices have led to the resumption of spending in the mining industry, which in turn boosted demand for mining equipment manufacturers. Meanwhile, farm equipment makers have been benefiting from the improving farm income driven by recovering agricultural commodity prices. This has led farmers to resume investing in new equipment and replacing their aging fleets. Further, increasing demand from residential construction, backed by the rising need for more work-at-home spaces and record-low mortgage rates, has been acting as a tailwind for construction equipment manufacturers. The companies that provide packaging solutions are gaining from the e-commerce boom as well as the solid demand for essential products amid the pandemic. On top of this, increased government spending to rebuild roads, bridges and waterways will translate into fresh demand for makers of construction materials and equipment, infrastructure engineering and design companies as well as companies making machinery parts.

Backed by this, the industrial products sector rallied 52.5% in a year’s time, outperforming the S&P 500’s growth of 42.5%.

The U.S. economy grew at a solid 6.4% rate in the first quarter of 2021, reflecting sustained economic recovery, reopening of establishments and continued government response related to the COVID-19 pandemic. It marked acceleration from growth of 4.3% in the fourth quarter of 2020. Analysts expect growth of 9% in the second quarter and remain hopeful that this is likely going to be the strongest year for the economy in about seven decades. Given that the manufacturing sector accounts for 11% of the U.S. economy, this improvement in the economy will translate into growth for the sector.

Per our latest Earnings Trends report, the Industrial Products sector is expected to deliver growth of 33.3% in earnings in 2021 — a major turnaround from the COVID-19 induced drop of 14.7% in earnings in 2020.

We put our Sectors (all 16 of them) into two groups: the top half (i.e., sectors with the best average Zacks Rank) and the bottom half (the sectors with the worst average Zacks Rank). Over the last 10 years, using a one week rebalance, the top half beat the bottom half by more than twice as much. (To learn more visit: About Zacks Sector Rank)

The industrial products sector, with a Zacks Sector Rank #4, remains in the top half.
 
Thus, we suggest you to stay invested in the sector to reap the benefits of robust prospects ahead. We have handpicked five industrial stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a VGM Score of A or B. We believe this combination offers the best investment opportunities. These stocks have also outperformed the S&P year to date, which is shown in the chart below. Moreover, these stocks are anticipated to carry the momentum forward backed by their earnings growth projections. You can see the complete list of today’s Zacks #1 Rank stocks here.
 

Zacks Investment ResearchImage Source: Zacks Investment Research

Greif, Inc. (GEF - Free Report) : based in Delaware, OH, Greif produces and sells industrial packaging products and services worldwide. The company has been witnessing improvement in many of its key end markets, which is expected to aid results this year. Greif’s restructuring activities, which include optimizing and integrating operations in the Paper Packaging & Services segment, rationalizing operations and closing underperforming assets in the Global Industrial Packaging segment, will lead to savings. A strong and diverse product portfolio, and the Caraustar buyout will also contribute to growth.

The Zacks Consensus Estimate for the company’s earnings for the ongoing fiscal indicates year-over-year growth of 47%. The Zacks Consensus Estimate for this year’s earnings has gone up 31% in the past 60 days. The company has a trailing four-quarter earnings surprise of 6%, on average. The company has an estimated long-term earnings growth rate of 10%. The stock currently has a Zacks Rank #1 and a VGM Score of A. The stock has gained 28.8% year to date, compared with the S&P 500’s rally of 14.7%.

Caterpillar Inc. (CAT - Free Report) : Headquartered in Deerfield, IL, Caterpillar manufactures and sells construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives worldwide. The company will benefit from the strong demand in China and pickup in global manufacturing activity. Its Construction Industries segment is expected to gain on strength in residential construction and recovery in non-residential construction in the United States, and robust construction demand in Brazil and increased spending on U.S. infrastructure. The Resource Industries segment can benefit from improving commodity prices. Savings from its restructuring actions can also boost margins. Further, a robust liquidity position, investments in expanded offerings, and services and digital initiatives are expected to fuel growth.

The Zacks Consensus Estimate for company’s ongoing-year earnings has moved up 16% over the past 60 days. The estimate for the current year indicates year-over-year growth of 46%. The company has a trailing four-quarter earnings surprise of 41.6%, on average. Notably, Caterpillar has an estimated long-term earnings growth rate of 12%. The stock has gained 18.8% so far this year, compared with the S&P 500’s growth of 14.7%. It currently has a Zacks Rank #2 and a VGM Score of A.

Deere & Company (DE - Free Report) : Headquartered in Moline, IL, Deere manufactures agricultural and construction equipment worldwide. The company will gain from higher demand stemming from improving farm income driven by recovering agricultural commodity prices and the need to replace an ageing fleet. Strength in residential construction will also favor its top-line. Moreover, the company will benefit from concerted focus on launching products with advanced technologies and features. It is assessing cost structure by reviewing organization efficiency and footprint assessment, which in turn will help improve margins. Further, the company manufactures and distributes road building equipment through its wholly-owned subsidiaries of the Wirtgen Group. Thus, it stands to benefit from the increased spending on infrastructure.

The Zacks Consensus Estimate for the company’s earnings for the ongoing fiscal suggests year-over-year growth of 106%. The Zacks Consensus Estimate for this year’s earnings has gone up 11.8% in the past 60 days. The company has a trailing four-quarter earnings surprise of 68%, on average. The company has an estimated long-term earnings growth rate of 20%. This Zacks #2 Ranked company has a VGM Score of B. Its shares have gained 30% year to date, compared with the S&P 500’s 14.7% growth.

Sealed Air Corporation (SEE - Free Report) : Charlotte, NC-based Sealed Air provides food safety and security, and product protection solutions and equipment. Approximately 75% of Sealed Air's end markets are experiencing higher demand for food, medical supplies, consumer staples, and surge in e-commerce demand amid the COVID-19 pandemic. These are likely to drive the company's top line. It anticipates realizing around $65 million of benefits from its Reinvent SEE program in the current year, which will bolster earnings. Acquisitions, product innovation and investment in automation will also favor its results.

The Zacks Consensus Estimate for the company’s earnings for the ongoing fiscal indicates year-over-year growth of 10%. The Zacks Consensus Estimate for this year’s earnings has gone up 5% in the past 60 days. The company has a trailing four-quarter earnings surprise of 21.4%, on average. The company has an estimated long-term earnings growth rate of 8.3%. The stock currently has a Zacks Rank #2 and a VGM Score of B. So far this year, the stock has gained 27.8%, compared with the S&P 500’s rally of 14.7%.

Berry Global Group (BERY - Free Report) : Evansville, IN based Berry Global manufactures and supplies non-woven, flexible, and rigid products in consumer and industrial end markets. The company’s diversified business structure enables it to mitigate the adverse impacts of weakness in one end market with strength across others. Also, the RPC Group buyout is enhancing growth opportunities in the plastic and recycled packaging industry. Berry Global’s focus on improving operational productivity and its partnerships across the value chain are likely to benefit it.

The Zacks Consensus Estimate for the company’s earnings for the ongoing fiscal indicates year-over-year improvement of 19.6%. The Zacks Consensus Estimate for this year’s earnings has gone up 7.6% in the past 60 days. The company has a trailing four-quarter earnings surprise of 24.7%, on average. The company has an estimated long-term earnings growth rate of 10%. This Zacks #2 Ranked company has a VGM Score of B. Its shares have gained 17.6% so far this year, compared with the S&P 500’s 14.7% growth.

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