Last year, the industrial sector was one of the most adversely impacted sectors due to weak commodity prices, reduced investment in the energy sector due to lower oil prices, poor economic conditions in some developed and developing nations, and Brexit. However, it seems to have found its footing this year.
For the second quarter of 2017, industrial production — a measure of output at factories, mines and utilities, rose at an annual rate of 4.7%. This was driven by impressive growth in mining and utilities, and marked a substantial improvement over the first-quarter’s gain of 1.4%. Industrial production rose 0.2% in July, marking the sixth consecutive monthly increase.
Government policies encouraging better trade relations, increase in infrastructural investments, job creation and high consumer-end demand will accelerate growth of the U.S. economy. This in turn will prove beneficial for industrial stocks.
In the past year, the industrial products sector (one of the 16 broad Zacks sectors) has clocked a gain of 11.9%, underperforming the S&P 500’s climb of 15.9%. The sector had exhibited strength following the election of President Donald Trump, primarily factoring in his promised pro-growth policies. However, the momentum has stalled following uncertainties looming over policy enactment and implementation. However, if Trump’s plan of significant investment in the country’s infrastructure is eventually implemented the industrial sector will be one of the sectors to get a mighty boost.
Nevertheless, the Industrial Products sector put up 18.8% growth in earnings in second-quarter 2017. As per our latest Earnings Trends
report an 8% growth in earnings is projected for third-quarter 2017 and 17% for the fourth quarter. It is one the eight sectors that is expected to log positive growth in earnings in the third quarter.
We put our Sectors (all 16 of them) into two groups: the top half (i.e., sectors with the best average Zacks Rank) and the bottom half (the sectors with the worst average Zacks Rank). Over the last 10 years, using a one week rebalance, the top half beat the bottom half by more than twice as much. (To learn more visit: About Zacks Sector Rank
). The industrial products sector, with a Zacks Sector Rank #2, remains in the top half.
Thus we suggest you to stay invested in the sector to reap the benefits of healthy prospects ahead. To zero in on stocks that are winning currently and have the potential to gain further, we have opted for one of the relatively new investment techniques, by betting on stocks near a 52-week high. The 52-week investment strategy relies on the new investment mantra, “buy high and sell higher.”
Why These Stocks are Good Bets
Investing in stocks near their 52-week high is similar to following the momentum strategy, which is based on the premise that once a trend is established, it is likely to continue. The surge is driven by a broad set of factors including impressive sales, robust profitability and bullish earnings prospects. Major developments may also send stocks soaring.
Meanwhile, stocks that are trading near their 52-week highs carry the risk of declining rapidly as the market might consider them overvalued. But the positives seem to outweigh drawbacks.
Notably, momentum investors strongly believe in “the trend is your friend”, which means stocks that are growing will continue to grow. They make short-term choices among stocks that are scaling up and sell them at the first sign of a downtrend. The basic idea is that once a trend is recognized, it is likely to continue and the chances of a reversal are minimal.
Thus, picking such stocks might help investors earn higher returns in the short term. However, this is only a speculative strategy and not meant for the faint hearted.
Stocks That Fit the Bill
Alarm.Com Holdings, Inc.
(ALRM - Free Report
) , provides cloud-based software platform solutions for the smart homes and businesses in the United States and internationally, boasts a Zacks Rank #2 and has a Momentum Style Score of A. The company has an expected long-term earnings growth of 17.83%. The company has delivered positive earnings surprises in the last four quarters, with an average beat of 73.05%. Sentiments are in favor of the company, as evident from the positive earnings estimate revisions of 28% for 2017 and 10% for 2018 in the last 30 days. The stock closed at $45.47 yesterday, logging a year-to-date gain of 63.4% and is near its 52-week high of $45.93.
(CAT - Free Report
) , the world's largest manufacturer of construction and mining equipment, diesel and natural gas engines and industrial gas turbines, sports a Zacks Rank #1 and has a Momentum Style Score of B. The company has delivered positive earnings surprises in the last four quarters, with an average beat of 41.43%. The long-term expected earnings growth rate for Caterpillar is 9.5%. The estimates for fiscal 2017 and fiscal 2018 have moved north 26% and 29%, respectively in the last 60 days, reflecting the positive outlook of analysts. The stock has gained 27.5% so far this year and closed trading at $118.30 yesterday, near its 52-week high of $119.13.
Pointer Telocation Ltd.
(PNTR - Free Report
) provides mobile resource management products and services for the automotive, insurance industries, and other mobile tracking markets worldwide. The stock flaunts a Zacks Rank #1 and Momentum Score of B. Pointer Telocation has outpaced the Zacks Consensus Estimate in the trailing four quarters, generating an encouraging positive average earnings surprise of 59.4%. The estimate for fiscal 2017 climbed 12% in the past 30 days and moved north 16% for fiscal 2018. Closing at $15.05 yesterday, the stock has soared 121.3% so far this year and is near its 52-week high of $15.90.
Sun Hydraulics Corporation
(SNHY - Free Report
) designs, manufactures, and sells screw-in cartridge valves, manifolds, along with integrated fluid power packages and subsystems used in hydraulic systems to industrial and mobile customers worldwide. The stock flaunts a Zacks Rank #1 and has a Momentum Style Score of B. The company has an average positive earnings surprise of 3.5% in the trailing four quarters. The earnings estimates for the company for fiscal 2017 and fiscal 2018 have moved up 15% and 13%, respectively, in the last 30 days. Closing at $47.89 yesterday, the stock has gained 19.8% so far this year and is near its 52-week high of $48.44.
(KMTUY - Free Report
) engages in the development, manufacture, marketing, and sale of various industrial-use products and services worldwide. The stock sports a Zacks Rank #1 and has a Momentum Style Score of A. The long-term expected earnings growth rate for Komatsu is 12.7%.The earnings estimates for the company for fiscal 2017 and fiscal 2018 have moved up 16% and 21%, respectively, in the last 30 days. Closing at $27.16 yesterday, the stock has gained 19.8% so far this year and is near its 52-week high of $27.50.
(SDVKY - Free Report
) is a high-technology, engineering group with advanced products and a world-leading position within selected areas. The stock carries a Zacks Rank #2 and has a Momentum Style Score of A. The earnings estimates for the company for fiscal 2017 and fiscal 2018 have moved up 5% and 6%, respectively, in the last 30 days, The stock closed at $16.86 yesterday, the stock has gained 37.5% so far this year and is near its 52-week high of $17.02.
These stocks have managed to grab the spotlight with notable performances, supported by solid earnings and impressive growth projections. These factors make us more or less confident that investing in these stocks will yield strong returns in the short term.
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