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4 Stocks to Buy as Manufacturing Activity Continues to Expand

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The manufacturing sector has been making fast progress despite renewed COVID-19 fears every time a new mutant is detected. The reopening of the economy last year saw manufacturing activity picking up and staying high since then.

According to the Institute for Supply Management (“ISM”), manufacturing activity continued to trend upward in November. Although people had started spending more on services, they again shelled out more on goods, giving manufacturing activity a boost. Thus, stocks such as Welbilt (WBT - Free Report) , A. O. Smith (AOS - Free Report) , Helios Technologies, Inc (HLIO - Free Report) and Applied Industrial Technologies, Inc. (AIT - Free Report) are likely to benefit in the near term.

Manufacturing Activity Continues to Grow

The ISM said on Nov 1 that U.S. manufacturing activity expanded to a reading of 61.1 in November from a reading of 60.8 in October. This was almost in line with analysts’ expectations of 61.0.

Manufacturing activity has accelerated for the 18th straight month, reflecting the underlying strength in the nation’s economy. The rise in manufacturing activity came from growing demand and consumption despite a number of obstacles like factories experiencing delays in getting delivery of raw materials.

One of the major reasons for the increase was a rise in the survey’s measure of production. The Production Index rose to 61.5 in November from October’s 59.3. The New Orders Index rose to 61.8 in November from 59.8 in October.

The Employment Index climbed to 53.3 from 52.0 in October. However, prices paid index dropped more than expected to 82.4 in November from 85.7 in October.

Manufacturing Activity Poised to Grow

Although people started spending more on services as the economy continued to reopen, they again started investing in goods, which is a good sign for the manufacturing sector.

Manufacturing activity took a bad hit last year, following the COVID-19 outbreak, but recovered soon. Since June 2020, when the economy started reopening, the ISM PMI has remained above 50. Anything above 50 indicates expansion in manufacturing activity.

With more people now having taken the vaccine, they are a lot more confident. Businesses and factories are fast going back to their optimum levels of production. Although the recently detected Omicron variant of the coronavirus has reignited fears, reports suggest that the variant can be tamed with the already available vaccines.

Besides, people have started spending aggressively. The Commerce Department said last week that U.S. personal spending rose 1.3% in October despite inflation. Also, personal income rose 0.5% month over month in October, beating analysts’ expectations of a rise of 0.3%. This once again proves that people have the spending power and willing to shell out, both of which act as catalysts for the manufacturing sector.

Our Choices

Given this scenario, we have handpicked four stocks that could make ideal investments. 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.

Helios Technologies, Inc.develops and manufactures hydraulic and electronic control solutions. HLIO’s operating subsidiaries include Sun Hydraulics, Enovation Controls and Faster Group. Helios Technologies’ operating business segment consists of Hydraulics and Electronics.

Helios Technologies’expected earnings growth rate for the current year is 82.1%. The Zacks Consensus Estimate for current-year earnings has improved 6.8% over the past 60 days. Shares of HLIO have advanced 25.42% in the past three months. Helios Technologies sports a Zacks Rank #1.

A. O. Smith is one of the leading manufacturers of commercial and residential water heating equipment, and water treatment products of the world. AOS specializes in offering innovative, and energy-efficient solutions and products, which are developed and sold on a global platform.A. O. Smith reports operations under two geographic segments — North America and Rest of World. 

A. O. Smith’s expected earnings growth rate for the current year is 35.2%. The Zacks Consensus Estimate for current-year earnings has improved 5.8% over the past 60 days. Shares of AOS have gained 12.8% in the past 30 days. A. O. Smith carries a Zacks Rank #2.

Applied Industrial Technologies, Inc. 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. Last year, AIT acquired Advanced Control Solutions, known for providing automation products and engineered solutions on machine vision equipment and software. Earlier this year, Applied Industrial Technologies acquired Gibson Engineering Company, Inc.

Applied Industrial Technologies’ expected earnings growth rate for the current year is 14.1%. The Zacks Consensus Estimate for current-year earnings has improved 1.9% over the past 60 days. Shares of AIT have advanced 9% in the past three months. Applied Industrial Technologies carries a Zacks Rank #2.

Welbilt designs, manufactures and supplies food and beverage equipment for foodservice market. WBT operates primarily in Americas, Europe and Asia. Welbilt reported earnings of 21 cents per share, beating the Zacks Consensus Estimate of 15 cents.

Welbilt’sexpected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 3.2% over the past 60 days. Shares of WBT have advanced 0.8% in the past three months. WelbiltTechnologies carries a Zacks Rank #2.