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5 Manufacturing Stocks to Buy Defying a Tepid Scenario
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The U.S. manufacturing sector has contracted for 11 consecutive months in September following a 28-month period of growth. The Institute of Supply Management (ISM) reported that the reading for U.S. manufacturing PMI (purchasing managers’ index) came in at 49.
Notably, any reading below 50 indicates a contraction in manufacturing activities. However, the index surpassed the consensus mark of 48.3 and handily beat August’s reading of 47.6. Moreover, three of the major subindexes have expanded.
The Production PMI came up with a reading of 52.5, increasing 2.5% month over month in September. The Employment Index came up with a reading of 51.2, up 2.7% from August’s reading of 48.5. Finally, the ISM’s forward-looking subindex for new orders climbed to 49.2 in September from 46.8 in August.
While supply-chain disruptions persist, especially related to the availability of electronic components, the situation has improved, as evident from the ISM report’s Supplier Deliveries Index, which reflected faster deliveries for the twelfth straight month in September.
The industry participants are focused on an acquisition-based growth strategy to expand their network and product offerings. This helps them foray into new markets and solidify their competitive position. Exposure to various end markets helps industrial manufacturing companies offset risks associated with a single market.
Our Top Picks
We have narrowed our search to five manufacturing stocks with strong potential for the rest of 2023. These stocks have seen positive earnings estimate revisions in the last 60 days. Each of our picks carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong BUY) stocks here.
The chart below shows the price performance of our five picks year to date.
Image Source: Zacks Investment Research
Caterpillar Inc. (CAT - Free Report) has seen year-over-year revenue and earnings growth for nine straight quarters thanks to its cost-saving actions, strong end-market demand and pricing actions that offset the impact of supply-chain snarls and cost pressures. We expect the company’s adjusted earnings per share for 2023 to grow 19.5% and revenues to rise 7.6%.
Caterpillar has an expected revenue and earnings growth rate of 12.8% and 43.6%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.1% over the last 30 days.
Emerson Electric Co. (EMR - Free Report) has been benefiting from healthy demand across end markets. Strong demand across the process and hybrid markets are driving EMR’s underlying sales. The successive deals to acquire Afag and Flexim spark optimism. Emerson Electric’s $8.2 billion deal to acquire National Instruments holds promise. EMR’s bullish guidance for fiscal 2023 is encouraging.
Emerson Electric has an expected revenue and earnings growth rate of 5.4% and 10.6%, respectively, for the current year (ending September 2024). The Zacks Consensus Estimate for current-year earnings has improved 1.4% over the last 30 days.
Deere & Co. (DE - Free Report) is witnessing solid growth in order levels, which is expected to aid its top-line performance in the forthcoming quarters. Strong replacement demand will continue to boost DE’s results. Demand for its construction equipment will likely benefit from anticipated growth in infrastructural investments in the United States.
Product launches equipped with the latest technology to make farming automated will continue to provide DE with an edge over its competitors. DE is poised to benefit in the long run from rapid growth in the global population and rising worldwide infrastructure needs.
Deere has an expected revenue and earnings growth rate of 16.9% and 45.7%, respectively, for the current year (ending October 2023). The Zacks Consensus Estimate for current-year earnings has improved 0.1% over the last 60 days.
Xylem Inc. (XYL - Free Report) has been benefiting from strength across the utilities and industrial water applications end markets, strong industrial demand and improving supply chains. Strong price realization and backlog execution in the U.S. and emerging markets are driving the Applied Water segment.
Synergies from the Evoqua acquisition bolster XYL’s growth. Amid a healthy demand environment and to include contributions from the Evoqua buyout, XYL has raised its 2023 guidance.
Xylem has an expected revenue and earnings growth rate of 30.5% and 28.1%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 9% over the last 60 days.
Parker-Hannifin Corp. (PH - Free Report) is benefiting from increased productivity & supply-chain improvement in the North American region within the Diversified Industrial segment. Synergies from the Meggitt buyout (September 2022) are also aiding PH.
The Meggitt buyout has bolstered PH’s Aerospace Systems unit (revenues jumped about 90% year over year in the fourth quarter of fiscal 2023). Benefits from the Win strategy are driving PH’s margins.
Parker-Hannifin has an expected revenue and earnings growth rate of 5% and 5.3%, respectively, for the current year (ending June 2024). The Zacks Consensus Estimate for current-year earnings has improved 0.2% over the last 30 days.
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5 Manufacturing Stocks to Buy Defying a Tepid Scenario
The U.S. manufacturing sector has contracted for 11 consecutive months in September following a 28-month period of growth. The Institute of Supply Management (ISM) reported that the reading for U.S. manufacturing PMI (purchasing managers’ index) came in at 49.
Notably, any reading below 50 indicates a contraction in manufacturing activities. However, the index surpassed the consensus mark of 48.3 and handily beat August’s reading of 47.6. Moreover, three of the major subindexes have expanded.
The Production PMI came up with a reading of 52.5, increasing 2.5% month over month in September. The Employment Index came up with a reading of 51.2, up 2.7% from August’s reading of 48.5. Finally, the ISM’s forward-looking subindex for new orders climbed to 49.2 in September from 46.8 in August.
While supply-chain disruptions persist, especially related to the availability of electronic components, the situation has improved, as evident from the ISM report’s Supplier Deliveries Index, which reflected faster deliveries for the twelfth straight month in September.
The industry participants are focused on an acquisition-based growth strategy to expand their network and product offerings. This helps them foray into new markets and solidify their competitive position. Exposure to various end markets helps industrial manufacturing companies offset risks associated with a single market.
Our Top Picks
We have narrowed our search to five manufacturing stocks with strong potential for the rest of 2023. These stocks have seen positive earnings estimate revisions in the last 60 days. Each of our picks carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong BUY) stocks here.
The chart below shows the price performance of our five picks year to date.
Image Source: Zacks Investment Research
Caterpillar Inc. (CAT - Free Report) has seen year-over-year revenue and earnings growth for nine straight quarters thanks to its cost-saving actions, strong end-market demand and pricing actions that offset the impact of supply-chain snarls and cost pressures. We expect the company’s adjusted earnings per share for 2023 to grow 19.5% and revenues to rise 7.6%.
Caterpillar has an expected revenue and earnings growth rate of 12.8% and 43.6%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.1% over the last 30 days.
Emerson Electric Co. (EMR - Free Report) has been benefiting from healthy demand across end markets. Strong demand across the process and hybrid markets are driving EMR’s underlying sales. The successive deals to acquire Afag and Flexim spark optimism. Emerson Electric’s $8.2 billion deal to acquire National Instruments holds promise. EMR’s bullish guidance for fiscal 2023 is encouraging.
Emerson Electric has an expected revenue and earnings growth rate of 5.4% and 10.6%, respectively, for the current year (ending September 2024). The Zacks Consensus Estimate for current-year earnings has improved 1.4% over the last 30 days.
Deere & Co. (DE - Free Report) is witnessing solid growth in order levels, which is expected to aid its top-line performance in the forthcoming quarters. Strong replacement demand will continue to boost DE’s results. Demand for its construction equipment will likely benefit from anticipated growth in infrastructural investments in the United States.
Product launches equipped with the latest technology to make farming automated will continue to provide DE with an edge over its competitors. DE is poised to benefit in the long run from rapid growth in the global population and rising worldwide infrastructure needs.
Deere has an expected revenue and earnings growth rate of 16.9% and 45.7%, respectively, for the current year (ending October 2023). The Zacks Consensus Estimate for current-year earnings has improved 0.1% over the last 60 days.
Xylem Inc. (XYL - Free Report) has been benefiting from strength across the utilities and industrial water applications end markets, strong industrial demand and improving supply chains. Strong price realization and backlog execution in the U.S. and emerging markets are driving the Applied Water segment.
Synergies from the Evoqua acquisition bolster XYL’s growth. Amid a healthy demand environment and to include contributions from the Evoqua buyout, XYL has raised its 2023 guidance.
Xylem has an expected revenue and earnings growth rate of 30.5% and 28.1%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 9% over the last 60 days.
Parker-Hannifin Corp. (PH - Free Report) is benefiting from increased productivity & supply-chain improvement in the North American region within the Diversified Industrial segment. Synergies from the Meggitt buyout (September 2022) are also aiding PH.
The Meggitt buyout has bolstered PH’s Aerospace Systems unit (revenues jumped about 90% year over year in the fourth quarter of fiscal 2023). Benefits from the Win strategy are driving PH’s margins.
Parker-Hannifin has an expected revenue and earnings growth rate of 5% and 5.3%, respectively, for the current year (ending June 2024). The Zacks Consensus Estimate for current-year earnings has improved 0.2% over the last 30 days.