Back to top

Image: Bigstock

5 Stocks Set to Gain as Factory Orders Continue to Rise

Read MoreHide Full Article

Factory orders rose again in June, indicating that manufacturing activity in the United States continues to expand as the economy further reopens. New orders for factory goods have been on the rise ever since the economy reopened, which once again proves the underlying strength in the country’s economy.

Also, new orders have shown a consistent rise despite raw material shortages. However, the growing demand is now putting pressure on supply change but that seems to be just a passing phase.

Factory Orders Rise in June

The Commerce Department reported on Aug 3 that factory orders rose 1.5% in June, after jumping 2.3% in May, and surpassed analysts’ expectations of 1%. Factory orders have now risen for 13 out of the past 14 months.

On a year-over-year basis, new orders jumped 18.4%. The jump in orders was across a range of sections, with substantial gains in machinery, computers, electrical equipment, electronic goods, appliances and components.

Orders for durable goods increased 0.9% in June. Also, orders for non-defense capital goods — excluding aircraft, which is considered a measure of business spending plans on equipment — increased 0.7% in June from 0.5% reported in the prior month.

The Commerce Department also reported that shipments for capital goods jumped 0.6% in June. Orders for transportation equipment grew 2%.

Manufacturing Sector Growing

The COVID-19 pandemic saw people spending more on capital goods as they worked and learnt remotely. This led to a surge in demand but that is now putting pressure on the supply chain. The Institute for Supply Management said on Aug 2 that manufacturing activity grew somewhat at a slower pace in July due to raw material shortages.

However, that seems to be temporary. The good thing is that both orders and shipments have been on the rise, indicating that economy is on the right track for recovery. The Commerce Department also said that business spending on equipment surged in the second quarter, registering double-digit growth for the fourth straight quarter.

Also, GDP increased 6.5% in the second quarter. Although it was below expectations, it was higher than the first quarter and was quite impressive given the kind of beating the economy had taken last year after the pandemic struck.

Our Choices

Factory orders continue to be on their path to recovery as the U.S. economy reopens further. This thus makes it a good time to invest in fundamentally sound stocks that stand to benefit from rising orders. We have handpicked five such stocks that carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Schnitzer Steel Industries, Inc. (SCHN - Free Report) collects, processes and recycles metals by operating one of the largest metals recycling businesses in the United States. It also manufactures finished steel products at its technologically advanced steel mini-mill.

The company’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 8.8% over the past 60 days. The company has a Zacks Rank #1.

Dover Corporation (DOV - Free Report) is an industrial conglomerate, producing a wide range of specialized industrial products and manufacturing equipment. The company said on Jul 27 that it has completed the acquisition of CDS Visuals, a provider of software as a service (SaaS) 3D visualization solutions, customized for industrial applications, for an undisclosed sum.

The company’s expected earnings growth rate for the current year is 32.6%. The Zacks Consensus Estimate for current-year earnings has improved 7.7% over the past 60 days. The company has a Zacks Rank #2.

Applied Industrial Technologies, Inc. (AIT - Free Report) is a distributor of value-added industrial products — including engineered fluid power components, bearings, specialty flow control solutions, power transmission products and miscellaneous industrial supplies. The company made quite a few big acquisitions in the past few months. Last year, it acquired Advanced Control Solutions, known for providing automation products and engineered solutions on machine vision equipment and software. Earlier this year, the company acquired Gibson Engineering Company, Inc.

The company’s expected earnings growth rate for the current year is 44.1%. The Zacks Consensus Estimate for current-year earnings has improved 0.7% over the past 60 days. The company has a Zacks Rank #2.

Altra Industrial Motion Corp. (AIMC - Free Report) is one of the leading manufacturers and distributors of a diversified range of motion control, electromechanical power transmission and automation products. Earlier this year, the company entered into a strategic partnership with MTEK Industry AB.

The company’s expected earnings growth rate for next year is 19.4%. The Zacks Consensus Estimate for current-year earnings has improved 6.2% over the past 60 days. The company has a Zacks Rank #2.

AZZ Inc. (AZZ - Free Report)  is a global provider of metal coating services, welding solutions, specialty electrical equipment and highly engineered services to the markets of power generation, transmission, distribution and industrial in protecting metal and electrical systems used to build and enhance world infrastructure. 

The company’s expected earnings growth rate for next year is 19.4%. The Zacks Consensus Estimate for current-year earnings has improved 13% over the past 60 days. The company has a Zacks Rank #1.