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4 Stocks to Buy on Continued Expansion in Manufacturing Activity

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Manufacturing activity is growing fast despite major challenges such as the rising cost of raw materials and supply-chain crisis. This once again proves that despite all the challenges, the nation’s economic recovery remains strong.

According to the Institute for Supply Management ("ISM"), manufacturing activity continued to expand in May. Although people have begun to spend more on services, demand for goods remains strong, giving a boost to manufacturing activity. Thus, stocks such as AZZ Inc. (AZZ - Free Report) , Applied Industrial Technologies, Inc. (AIT - Free Report) ,Titan International, Inc. (TWI - Free Report) and Helios Technologies, Inc. (HLIO - Free Report) are likely to benefit in the near term.

Manufacturing Activity Grows

The ISM said on Jun 1 that the manufacturing sector in the United States grew in May for the 24th straight month. The ISM’s manufacturing purchase manager’s index (“PMI”) increased to 56.1 from 55.4 in April, beating economists’ expectations of a decline to 54.5. Any reading above 50 is an indication of continued economic expansion.

Although manufacturing activity has been expanding, it was on a downward trend till April 2021, when the economic recovery was still gathering momentum after the pandemic. However, it has shown improvement and the reading has stayed above 50 since then, indicating that the country’s economic recovery remains strong going into summer.

The PMI for New Orders Index rose to 55.1% in May, 1.6% higher than April’s 53.5%. The Production Index rose to 54.2% in May from April 53.6%, refelcting a rise of 0.6%. The New Export Orders Index jumped to 52.9% in May, up 0.2% from April’s reading of 52.7%.

Manufacturing Sector Recovering Fast

The 24th consecutive month of growth is an indication that despite challenges like rising prices, the manufacturing sector hasn’t been impacted much. One of the major reasons behind this growth is soaring demand for goods.

Although people have once again started spending aggressively on services, as restrictions continue to get eased and the economy further reopens, demand for factory-manufactured goods has been on the rise.

This definitely is a good sign for the manufacturing sector, which took a bad hit during the peak of the pandemic. However, it started to bounce back as soon as the economy started reopening and gathered further steam from the first half of 2021.

Also, people are a lot more confident now after getting fully vaccinated. Businesses and factories have also started operating at their optimum level, indicating that manufacturing activity will accelerate in the coming days.

Moreover, people are also spending excessively. Despite rising costs, personal expenditure in the United States increased 0.9% in April, according to the Commerce Department. In addition, personal income increased 0.4% in April. This demonstrates that people have the financial means to spend and are eager to do so, 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.

AZZ Inc. 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 the world's infrastructure.

AZZ Inc’s expected earnings growth rate for the current year is 14.7%. The Zacks Consensus Estimate for current-year earnings has improved 12.6% over the past 60 days. AZZ carries a Zacks Rank #1.

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. AIT is also well known in the market for its engineering, design and systems integration services.

Applied Industrial Technologies’ expected earnings growth rate for the current year is 31.7%. The Zacks Consensus Estimate for current-year earnings has improved 5.9% over the past 60 days. AIT sports a Zacks Rank #1.

Titan International, Inc. is a leading global manufacturer of off-highway wheels, tires, assemblies and undercarriage products. TWI globally produces a broad range of products to meet the specifications of original equipment manufacturers and aftermarket customers in the agricultural, earthmoving/construction, and consumer markets.

Titan International’s expected earnings growth rate for the current year is 84.7%. The Zacks Consensus Estimate for current-year earnings has improved 35.3% over the past 60 days. TWI sports a Zacks Rank #1.

Helios Technologies, Inc. is an industrial technology company. It 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 7.3%. The Zacks Consensus Estimate for current-year earnings has improved 1.3% over the past 60 days. HLIO has a Zacks Rank #2.