Durable orders increased significantly in October, indicating that the U.S. manufacturing sector was attaining stability. This report adds further weight to a raft of data released recently which suggest that the economy has strengthened. Further, markets and industry have been buoyed by Donald Trump’s victory, hoping that this will provide an additional fillip to growth
This is why this may be a good idea to invest in the manufacturing sector. Adding stocks from this sector to your portfolio is a prudent option at this point.
Sharpest Increase Year-to-Date
Orders for durable goods increased by 4.8% to a seasonally adjusted $239.4 billion in October. This monthly increase was the sharpest recorded for the year. Durable orders exceeded most estimates primarily due to a near twofold rise in demand for civilian aircraft. However, excluding transportation, durable orders increased by 1%.
Additionally, orders for nondefense capital goods excluding aircraft increased by 0.4%. This is a marked improvement after the metric declined by 1.4% in September. Manufacturing growth has been held back by several factors including a surging dollar which has raised the cost of U.S. exports. However, this report and others released recently, including an improvement in the ISM manufacturing index for October, indicate that the tide is turning.
Economic Outlook Bright
The report on durable orders is further evidence of the fact that the economy is improving. Residential starts touched the highest level since Aug 2007, while the percentage increase from September was the biggest since Jul 1982. (Read: 5 Top Construction Picks as Housing Starts Hit 9-Year High) Further, existing home sales rose 2% in October to a seasonally adjusted rate of 5.60 million, the highest annualized rate in more than nine years.
Meanwhile, retail sales jumped 0.8% in October, recording the best two-month gains registered in more than two years. The pace of inflation has also increased recently, indicating that the economy has gained strength fairly early in the last quarter. According to the Atlanta Federal Reserve, GDP is expected to increase by 3.6% in the fourth quarter, compared to the rate of 2.9% for the July-September period. Such an increase is unlikely to occur without a further pickup in manufacturing.
The durable orders report is a sign that the manufacturing sector is regaining its lost sheen. A turnaround in industrial production is necessary for the increase in growth projected for the current quarter.
Picking stocks from manufacturing looks like a smart choice at this time. However, picking winning stocks may prove to be difficult.
This is where our VGM score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score.
We have narrowed down our search to the following stocks based on a good Zacks Rank and VGM score.
EnerSys (ENS - Free Report) engages in manufacturing, marketing and distribution of various industrial batteries including motive power, reserve power, aerospace and defense applications.
EnerSys has a Zacks Rank #1 (Strong Buy) and a VGM Score of A. The company has expected earnings growth of 16.5% for the current year. Its earnings estimate for the current year has improved by 4.3% over the last 30 days. The stock has returned 46.5% year-to-date, outperforming the Zacks Machinery Electrical Market sector, which has returned 24.1% over the same period.
Worthington Industries, Inc. (WOR - Free Report) is one of the leading diversified metal processing companies.
Worthington has a Zacks Rank #1 and a VGM Score of A. The company has expected earnings growth of 29.3% for the current year. Its earnings estimate for the current year has improved by 1.8% over the last 30 days. The stock has returned 103.9% year-to-date, outperforming the Zacks Metal Processing and Fabrication Market sector, which has returned 42.8% over the same period.
ACCO Brands Corporation (ACCO - Free Report) is a world leader in branded office products. Under the GBC brand, the Company is also a leader in the professional printing market.
ACCO Brands has a VGM Score of B. The company has expected earnings growth of 9% for the current year. The forward price-to-earnings (P/E) ratio for the current financial year (F1) is 15.12, lower than the industry average of 16.61. The stock has returned 80.2% year-to-date, outperforming the Zacks Office Supplies & Forms Market sector, which has returned 18.2% over the same period. The stock has a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Broadwind Energy, Inc. (BWEN - Free Report) owns, supports, grows and strategically positions companies that manufacture, install and maintain components for the energy industry, with a primary emphasis on the wind energy sector.
Broadwind Energy has a Zacks Rank #2 (Buy) and a VGM Score of A. The company has expected earnings growth of more than 100% for the current year. Its earnings estimate for the current year has improved by more than 100% over the last 30 days. The stock has returned 106.7% year-to-date, outperforming the Zacks Machinery General Industrial Market sector, which has returned 22.7% over the same period.
Net 1 Ueps Technologies Inc. (UEPS - Free Report) provides its universal electronic payment system as an alternative payment system across various sectors across the world.
Net 1 Ueps Technologies has lost 14.62% year-to-date, underperforming the Zacks Protection Security and Safety Services Market sector, which has gained 24.9% over the same period. However, it has a Zacks Rank #2 and a VGM Score of A. It has a P/E (F1) of 6.91, which is lower than the industry average of 17.30. Its earnings estimate for the current year has improved by 2.5% over the last 30 days. This provides a good opportunity to buy the stock.
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