Industrial products stocks have been strong performers since the beginning of second-quarter 2017 with the industry gaining roughly 5.80%, outperforming the S&P 500’s rally of 3.09%. We believe that the outperformance was driven by growth-friendly policies of the government and expectation of increased infrastructure spending.
In addition, several economic indicators point toward healthy operating conditions in the industry. For example, Industrial production – a measure of the level of output of manufacturing, mining and utilities sectors in a country – grew at an annual rate of 4.7% in the second quarter, driven by impressive growth in mining and utilities. Also, new orders for U.S.-manufactured machinery increased 4.6% in the first five months of 2017, primarily for the construction, mining and oil and gas field machinery.
Per the Earnings Preview dated Jul 21, the earnings season is unfolding well. As of that date, roughly 97 of S&P 500 companies reported results for the April-June quarter, with 78.4% beating earnings estimates and 72.2% surpassing revenue projections.
In the quarter, the market is anticipated to perform well, witnessing earnings and sales growth of 8.6% and 4.7%, respectively over the year-ago quarter. Industrial products stocks, accounting for 2% of the S&P 500 index’s total market capitalization, are likely to see earnings growth of 14.2% and sales growth of 12.9%.
Guide to Selecting the Right Stocks
Stocks with high investment rankings can be of interest to investors seeking exposure in the industrial products industry. But it is advisable to choose stocks that have the combination of a favorable Zacks Rank of #1 (Strong Buy) or 2 (Buy) or 3 (Hold) and a positive Earnings ESP (the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate). The combination of the dual factors indicates high probability of stocks surprising estimates in the quarter.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Below we have listed five industrial products stocks, with the right combination of elements to post an earnings beat in the second quarter:
AGCO Corporation (AGCO - Free Report) : The company, with a $5.7 billion market capitalization, is a leading manufacturer and distributor of agricultural equipment and related replacement parts.
The company, with a Zacks Rank #1 and has an Earnings ESP of +2.89%, seems a suitable pick for investors seeking exposure in this industry. Moreover, the stock promises returns of 6.6% on equity and 4.2% on capital. These prospects are supported by the company’s efforts to improve its services and build a sound customer base. Dividend yield presently is 0.78%. Its earnings are anticipated to grow 12.41% in the next three to five years.
AGCO Corporation is slated to release its results on Jul 27 before the market opens.
Eaton Corporation, PLC (ETN - Free Report) : The company, with a $35.18 billion market capitalization, is a diversified power management company and a global technology leader in electrical components and systems.
The company currently carries a Zacks Rank #2 and has an Earnings ESP of +1.72%. The stock promises solid returns of 12.8% on equity and 8.7% on capital. These prospects are supported by improving end-market conditions, restructuring activities, and research and development investments. Dividend yield presently is 3.04%.
The stock is currently valued at a forward P/E multiple of 16.9x versus 20.5x for the industry. The company’s solid return profile and estimated earnings growth rate of 10% for three to five years further enhance its prospects.
Eaton Corporation is slated to release its results on Aug 1 before the market opens.
AptarGroup, Inc. (ATR - Free Report) : The company is one of the leading providers of consumer product dispensing systems. Its products are primarily used in the beauty, personal care, home care, prescription drug, consumer health care, injectables, food and beverage markets. Currently, the company has a market capitalization of $5.6 billion.
The stock, with a Zacks Rank #2 and an Earnings ESP of +1.03%, seems a good investment option. In addition, the stock’s earnings are projected to grow nearly 9.33% in the next three to five years. Return on equity is 16.6% and return on capital is 10.2%. Dividend yield is 1.43%.
AptarGroup will release its results on Jul 27, after the market closes.
Flowserve Corporation (FLS - Free Report) : The company, with a $6 billion market capitalization, is a leading manufacturer and aftermarket service provider of comprehensive flow control systems globally.
The industrial company is worth considering as it carries a Zacks Rank #3 and an Earnings ESP of +4.55%. Also, the stock promises solid returns of 15.8% on equity and 8.4% on capital. Prospects are supported by the company’s efforts to diversify its sales stream, improve quality and build a sound partner network. Dividend yield currently is 1.64%.
Also, the company’s earnings are estimated to grow 11.74% in the next three to five years.
Flowserve Corporation is slated to release its results on Jul 27, after the market closes.
Graco Inc. (GGG - Free Report) : The company is one of the leading service providers for the management of fluids in manufacturing, processing, construction and maintenance industries. Currently, the company has a market capitalization of $6 billion.
The stock, with a Zacks Rank #3 and an Earnings ESP of +2.83%, seems a good investment option. In addition, the stock offers returns of 35.3% on equity and 16.4% on capital. Earnings growth is estimated to be roughly 10.33% in the coming three to five years.
Graco will release its results on Jul 26 after the market closes.
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