Manufacturing activity has lately been slowing down in the United States, but the good thing is that it is still growing, signaling that the sector is still trying to fight back challenges like rising costs. The demand for products is already being cooled down by higher interest rates, and people have started spending more on services once more.

However, higher demand for goods is still high and has been driving factory orders, although at a slower pace. Given this situation, stocks like Applied Industrial Technologies, Inc. (AIT Quick QuoteAIT - Free Report) , Standex International Corporation (SXI Quick QuoteSXI - Free Report) , Hubbell Incorporated (HUBB Quick QuoteHUBB - Free Report) , and Twin Disc, Incorporated (TWIN Quick QuoteTWIN - Free Report) are likely to benefit in the near term.

Factory Orders Rise Despite Challenges

The Commerce Department said on Nov 3 that new orders for U.S.-made factory goods increased in September. According to the report, factory orders rose 0.3% in September, which came in line with expectations. Factory orders increased 0.2% in August. On a year-over-year basis, factory orders increased 13% in September.

New orders for manufactured goods rose 1.5 billion to $551 billion, up 11 months out of the last 12 months. September’s jump was primarily driven by a 2.2% advance in transportation equipment bookings. This comes after a 0.5% rise in bookings for transportation equipment in August.

Orders for transportation goods were driven by a 21.9% jump in non-defense aircraft.

Manufacturing accounts for 11.3% of the total U.S. economy and the rise in September proves that the sector is still doing good although growth has somewhat slowed.

The report comes days after the Commerce Department said that orders for durable goods made in U.S. factories rose $1 billion or 0.4% to $274.7 billion in September. Excluding defense, new orders for durable goods jumped 1.4% in September.

Transportation equipment orders as a whole increased 2.1% to $90.4 billion. The increase in orders for transportation equipment within the category was widespread. In September, orders for vehicles and auto parts jumped 2.2% to $61.4 billion. According to the survey, the demand for large vehicles and SUVs remained high, which aided in increasing orders.    

Shipments of manufactured durable goods increased 0.3% or $0.7 billion in September to reach $274.2 billion. This comes after a 1.3% increase in August.

Shipments of manufactured durable goods have now increased in 16 out of the previous 17 months.

Although September’s jump in factory orders is moderate, the good thing is that the manufacturing sector still hasn’t succumbed to inflationary pressures. Higher prices have been making people spend cautiously but demand for consumer goods is still high, which is helping drive orders at U.S. factories.

The manufacturing sector has managed to survive despite massive challenges. Also, people have once again started spending more on services and less on goods, a trend that reversed during the pandemic. However, demand for goods continues to be high despite the shift in spending habits.

Our Choices

Given this scenario, it will be prudent to invest in stocks with a favorable Zacks Rank that are poised to gain from solid durable goods orders. We narrowed down our search to four such stocks. Each of these stocks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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’s products are mainly sold to original equipment manufacturers and maintenance, repair, and operations customers in Australia, North America, Singapore and New Zealand.

Applied Industrial Technologies’ expected earnings growth for the current year is 14.3%. The Zacks Consensus Estimate for current-year earnings has improved 3% over the past 60 days. AIT currently sports a Zacks Rank #1.

Standex International Corporation is a diversified manufacturer producing and marketing a wide variety of useful, quality products. SXI enjoys a broad and well-balanced earnings base by virtue of its strong market position in selected areas of operation.

Standex International Corporation’s expected earnings growth for the current year is 18.4%. The Zacks Consensus Estimate for current-year earnings has improved 3.6% over the past 60 days. SIX currently has a Zacks Rank #2.

Hubbell Incorporated is engaged in the design, manufacture and sale of electrical and electronic products to commercial, industrial, utility and telecommunications markets. HUBB’s products include plugs, receptacles, connectors, lighting fixtures, high-voltage test and measurement equipment, and voice and data signal processing components.

Hubbell Incorporated’s expected earnings growth for the current year is 27.7%. The Zacks Consensus Estimate for current-year earnings has improved 4.8% over the past 60 days. HUBB at present sports a Zacks Rank #1.

Twin Disc, Incorporated designs, manufactures and sells heavy-duty off-highway power transmission equipment. Products offered by TWIN include hydraulic torque converters; power-shift transmissions; marine transmissions and surface drives; universal joints; gas turbine starting drives; power take-offs and reduction gears; industrial clutches; fluid couplings and control systems.