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4 Top Stocks to Ride the Momentum in Manufacturing Activity
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The U.S manufacturing sector has been performing well for 18 consecutive months now, courtesy of strong demand for goods. Considering the plethora of issues plaguing the sector currently — labor shortage, inflationary pressures, shortage of critical raw materials, record-long lead times and hurdles in transporting products, this momentum in manufacturing activity looks promising.
The sector has rebounded strongly from the contraction suffered in March to May last year due the COVID-19 pandemic. Factory closures due to restrictions imposed by several governments, pandemic-induced supply chain disruptions and low demand for goods crippled the sector. The sector regained its ground in mid-2020 as economies started reopening and businesses resumed operations. It has been gaining momentum ever since, with new orders and production on a roll. Stocks like Emerson Electric Co. (EMR - Free Report) , Berry Global Group (BERY - Free Report) , Reliance Steel & Aluminum Co. (RS - Free Report) and Applied Industrial Technologies (AIT - Free Report) are well-poised to gain on these trends.
Per the Federal Reserve, U.S industrial production increased 1.6% in October, which was 5.1% above its year-earlier level and marking the highest reading since December 2019. Manufacturing output advanced 1.2% — the highest level since March 2019. All major market groups posted gains; the largest increases coming from materials, consumer goods, and defense and space equipment.
Farm equipment makers have been gaining from the improving farm income dynamics, which has persuaded farmers to resume investing in new equipment and replacing their aging fleets. 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 the construction equipment manufacturers. The companies that provide packaging solutions are gaining from the e-commerce boom and the solid demand for essential products amid the pandemic. Increased spending in the mining industry on the back of improving commodity prices and the industry’s increasing preference for automation to increase efficiency bolstered demand for the mining equipment manufacturers. On top of this, increased government spending to rebuild roads, bridges and waterways will translate into fresh demand for construction materials and equipment, infrastructure engineering and design companies, and ones making machinery parts.
Per our latest Earnings Trends report, the Industrial Products sector is expected to deliver a 38.2% growth in earnings in 2021 — a stark contrast to the COVID-19 induced drop of 14.7% in earnings witnessed in 2020. The earnings growth forecast for the next year for the sector is at 15.3%.
To capitalize on the sector’s growth, we highlight the following four stocks with a solid Zacks Rank and robust growth prospects. Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy), offer solid investment opportunities. You can see the complete list of today’s Zacks #1 Rank stocks here.
4 Stocks to Bet On
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Emerson Electric: The company is poised to benefit from a strong recovery in discrete and hybrid end markets. Improvements in process automation end markets and robust backlog level at its Automation Solutions segment are likely to drive its revenues in the quarters ahead. Strength across the food and beverage, cold chain, residential heating, ventilation, and air conditioning end markets also remain conducive. Its shares have gained 13.1% so far this year. Acquisitions have been the company’s preferred mode of business expansion. Its restructuring actions will boost margins.
Emerson Electric has a Zacks Rank #2 and a VGM Score of A. It has an expected earnings growth of 18.7% for the current year. The Zacks Consensus Estimate for AMR’s current-fiscal earnings has been revised upward by 7% over the last 60 days. The company has a trailing four-quarter earnings surprise of 10.7%, on average. The company also has an estimated long-term earnings growth rate of 8.7%.
Berry Global: The company continues to gain from the ongoing strength in the food & beverage and healthcare end markets, along with recovery in the construction space. Backed by this, its share price has appreciated 25.8% so far this year. Focus on improving operational productivity, along with its partnerships across the value chain, is likely to act as a key catalyst. Its investments in equipment technologies, advantaged film development and design for circularity are likely to boost its competency.
Berry Global has an expected earnings growth of 2.6% for the current year. The consensus mark for its current-year earnings has gone up 17% over the last 60 days. The company has a trailing four-quarter earnings surprise of 16.5%, on average. It has a long-term estimated earnings growth of 10%. It has a Zacks Rank #2 and a VGM Score of B.
Reliance Steel & Aluminum: The company is seeing a strong rebound in non-residential construction — its largest market. It is also witnessing healthy bidding activities for new projects. Its broad and diversified product base and a wide geographic footprint provide it with a competitive edge. Strategic acquisitions and investments in new processing capabilities will also drive growth. Its shares have gained 28.5% so far this year.
Reliance Steel currently has a Zacks Rank #2 and a VGM Score of B. It has an expected earnings growth of 162.5% for the current year. Over the past 60 days, the Zacks Consensus Estimate for its current-year earnings has been revised upward by 6%. The company has a trailing four-quarter earnings surprise of 4.4%, on average.
Applied Industrial Technologies: The company is likely to benefit from the strengthening demand environment in industrial markets along with pricing actions and growth. Focus on acquisitions, improving the product line, value-added services, initiatives to drive operational excellence and cost-saving initiatives will yield results. Its investments in expanding automation, IIoT, and digital offerings and customer development initiatives are likely to act as tailwinds. The company’s shares have rallied 30.6% year to date.
Applied Industrial currently has a Zacks Rank #2 and a VGM Score of B. It has an expected earnings growth rate of 14% for the current year. The Zacks Consensus Estimate for its current-year earnings has moved up 2% in the last 60 days. AIT has a trailing four-quarter earnings surprise of 26.7%, on average.
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4 Top Stocks to Ride the Momentum in Manufacturing Activity
The U.S manufacturing sector has been performing well for 18 consecutive months now, courtesy of strong demand for goods. Considering the plethora of issues plaguing the sector currently — labor shortage, inflationary pressures, shortage of critical raw materials, record-long lead times and hurdles in transporting products, this momentum in manufacturing activity looks promising.
The sector has rebounded strongly from the contraction suffered in March to May last year due the COVID-19 pandemic. Factory closures due to restrictions imposed by several governments, pandemic-induced supply chain disruptions and low demand for goods crippled the sector. The sector regained its ground in mid-2020 as economies started reopening and businesses resumed operations. It has been gaining momentum ever since, with new orders and production on a roll. Stocks like Emerson Electric Co. (EMR - Free Report) , Berry Global Group (BERY - Free Report) , Reliance Steel & Aluminum Co. (RS - Free Report) and Applied Industrial Technologies (AIT - Free Report) are well-poised to gain on these trends.
Per the Federal Reserve, U.S industrial production increased 1.6% in October, which was 5.1% above its year-earlier level and marking the highest reading since December 2019. Manufacturing output advanced 1.2% — the highest level since March 2019. All major market groups posted gains; the largest increases coming from materials, consumer goods, and defense and space equipment.
Farm equipment makers have been gaining from the improving farm income dynamics, which has persuaded farmers to resume investing in new equipment and replacing their aging fleets. 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 the construction equipment manufacturers. The companies that provide packaging solutions are gaining from the e-commerce boom and the solid demand for essential products amid the pandemic. Increased spending in the mining industry on the back of improving commodity prices and the industry’s increasing preference for automation to increase efficiency bolstered demand for the mining equipment manufacturers. On top of this, increased government spending to rebuild roads, bridges and waterways will translate into fresh demand for construction materials and equipment, infrastructure engineering and design companies, and ones making machinery parts.
Per our latest Earnings Trends report, the Industrial Products sector is expected to deliver a 38.2% growth in earnings in 2021 — a stark contrast to the COVID-19 induced drop of 14.7% in earnings witnessed in 2020. The earnings growth forecast for the next year for the sector is at 15.3%.
To capitalize on the sector’s growth, we highlight the following four stocks with a solid Zacks Rank and robust growth prospects. Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy), offer solid investment opportunities. You can see the complete list of today’s Zacks #1 Rank stocks here.
4 Stocks to Bet On
Emerson Electric: The company is poised to benefit from a strong recovery in discrete and hybrid end markets. Improvements in process automation end markets and robust backlog level at its Automation Solutions segment are likely to drive its revenues in the quarters ahead. Strength across the food and beverage, cold chain, residential heating, ventilation, and air conditioning end markets also remain conducive. Its shares have gained 13.1% so far this year. Acquisitions have been the company’s preferred mode of business expansion. Its restructuring actions will boost margins.
Emerson Electric has a Zacks Rank #2 and a VGM Score of A. It has an expected earnings growth of 18.7% for the current year. The Zacks Consensus Estimate for AMR’s current-fiscal earnings has been revised upward by 7% over the last 60 days. The company has a trailing four-quarter earnings surprise of 10.7%, on average. The company also has an estimated long-term earnings growth rate of 8.7%.
Berry Global: The company continues to gain from the ongoing strength in the food & beverage and healthcare end markets, along with recovery in the construction space. Backed by this, its share price has appreciated 25.8% so far this year. Focus on improving operational productivity, along with its partnerships across the value chain, is likely to act as a key catalyst. Its investments in equipment technologies, advantaged film development and design for circularity are likely to boost its competency.
Berry Global has an expected earnings growth of 2.6% for the current year. The consensus mark for its current-year earnings has gone up 17% over the last 60 days. The company has a trailing four-quarter earnings surprise of 16.5%, on average. It has a long-term estimated earnings growth of 10%. It has a Zacks Rank #2 and a VGM Score of B.
Reliance Steel & Aluminum: The company is seeing a strong rebound in non-residential construction — its largest market. It is also witnessing healthy bidding activities for new projects. Its broad and diversified product base and a wide geographic footprint provide it with a competitive edge. Strategic acquisitions and investments in new processing capabilities will also drive growth. Its shares have gained 28.5% so far this year.
Reliance Steel currently has a Zacks Rank #2 and a VGM Score of B. It has an expected earnings growth of 162.5% for the current year. Over the past 60 days, the Zacks Consensus Estimate for its current-year earnings has been revised upward by 6%. The company has a trailing four-quarter earnings surprise of 4.4%, on average.
Applied Industrial Technologies: The company is likely to benefit from the strengthening demand environment in industrial markets along with pricing actions and growth. Focus on acquisitions, improving the product line, value-added services, initiatives to drive operational excellence and cost-saving initiatives will yield results. Its investments in expanding automation, IIoT, and digital offerings and customer development initiatives are likely to act as tailwinds. The company’s shares have rallied 30.6% year to date.
Applied Industrial currently has a Zacks Rank #2 and a VGM Score of B. It has an expected earnings growth rate of 14% for the current year. The Zacks Consensus Estimate for its current-year earnings has moved up 2% in the last 60 days. AIT has a trailing four-quarter earnings surprise of 26.7%, on average.