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5 Stocks to Buy as Manufacturing Growth Hits 2-Yr High

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Manufacturing growth climbed to its highest pace during the month of January, according to the latest report from the Institute for Supply Management. Such a reading comes at an opportune time, given that the new ADP report is also promising, with significant job additions in manufacturing.

This is keeping with the Trump administration’s aim to promote jobs in the U.S., particularly in the manufacturing sector. Adding stocks from the sector to your portfolio could make for a lucrative investment at this point.

Increase Highest in 2 Years

The ISM Manufacturing Index increased from December’s level of 54.5 percent by 1.5 percentage points to 56 percent in January. This is the highest level witnessed since Nov 2014. Additionally, the index for new orders increased by 0.1 percentage point to 60.4 percent and the production index increased by 2 percentage points to 61.4 percent. Both of these levels are the highest experienced in two years.

Additionally, the prices index increased by 3.5 percentage points to 69 percent. This indicates that raw material prices have increased for the 11th month in succession. The index has increased to the highest level witnessed since May 2011, indicating that improving demand has raised the cost of raw materials. This is yet another signal of the trend of rising inflation worldwide.

ADP Numbers Impress, Trump Actions Offers Promise

Meanwhile, the private sector contributed 246,000 jobs in January, a figure which exceeded all expectations. Most estimates had centered on an increase of 168,000, which itself was a handsome increase over the initial December estimate of a gain of 153,000 jobs. Significantly, the manufacturing sector contributed 15,000 of these job additions. This is also the highest level witnessed since Dec 2014.

Growth in manufacturing sector employment is in keeping with President Trump’s electoral promises and immediate actions on assuming office. During his campaign, the president had promised to boost U.S. industry and jobs through a combination of higher infrastructure spending, tax cuts and deregulation.

In the first concrete example of how he intends to boost domestic industry, the President signed an order stating that the Secretary of Commerce will have to prepare a plan which requires that U.S. made steel to be used in all pipelines within the U.S., whether they are new, under expansion or being retrofitted. This follows a series of orders which eases the way for the Dakota Access and Keystone XL pipeline projects. (Read: 5 Steel Stocks to Buy on Trump's Pipeline Actions)

Our Choices

The latest reading of the ISM manufacturing index reinforces the view that the sector is growing at a rapid pace and is likely to expand further in the days ahead. Favorable ADP data and President Trump’s promises and actions are likely to support such a trend.

Picking manufacturing stocks looks like a smart option at this time. However, picking winning stocks may 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.

Atkore International Group Inc. (ATKR - Free Report) is a manufacturer and distributor of electrical raceway products.

Atkore International has a Zacks Rank #1 (Strong Buy) and a VGM Score of A. The company has expected earnings growth of 59.6% for the current year. Its earnings estimate for the current year has improved by 4.2% over the last 30 days. The stock has returned 70.3% over the last one year, outperforming the Zacks Wire and Cable Products Market sector, which has gained 57% over the same period.

II-VI Incorporated designs, manufactures and markets optical and opto-electronic components, devices and materials for infrared, near-infrared, visible light, x-ray and gamma ray instrumentation.

II-VI has a Zacks Rank #1 and a VGM Score of A. Its earnings estimate for the current year has improved by 19.4% over the last 30 days. The stock has returned 77% over the last one year, outperforming the Zacks Manufacturing - Electronics  Market sector, which has gained 39.1% over the same period.

Chart Industries, Inc. (GTLS - Free Report) is a leading independent global manufacturer of highly engineered equipment used in the production, storage and end use of hydrocarbon and industrial gases.

Chart Industries has a VGM Score of B. Its earnings estimate for the current year has improved by 0.8% over the last 30 days. The stock has returned 158.8% over the last one year, outperforming the Zacks Manufacturing - General Industrial  Market sector, which has gained 37.9% 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.

Titan International, Inc. is a global manufacturer of off-highway steel wheels and tires in the agricultural, earthmoving/construction and consumer markets.

Titan International 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 31.3% over the last 30 days. The stock has returned 358.1% over the last one year, outperforming the Zacks Manufacturing - Farm Equipment Market sector, which has gained 43.8% over the same period.

Rockwell Automation Inc. (ROK - Free Report) is an original equipment manufacturer (OEM) of industrial automation equipment, application specific integrated software and consulting design services.

Rockwell Automation has a Zacks Rank #2 and a VGM Score of B. The company has expected earnings growth of 5.2% for the current year. Its earnings estimate for the current year has improved by 4.2% over the last 30 days. The stock has returned 59.3% over the last one year, outperforming the Zacks Industrial Automation and Robotics Market sector, which has gained 55.6% over the same period.

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