After delivering a shaky performance last year, the machinery industry, broadly grouped under the Industrial products sector, has been steadily rebounding. 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 inched up 0.2% in July, its sixth consecutive monthly increase.
Upbeat Data Instills Optimism
Per the U.S. Census Bureau report, new orders for the U.S.-manufactured machinery jumped 5.7% in the first half of 2017, stemming from growth in orders for construction, mining, industrial, material handling and other machineries.
Further, economic activity expanded at a moderate pace in July and August, along with modest expansion in manufacturing activity, as stated by the Federal Reserve. In addition, consumer spending also escalated in most districts in the United States.
Good Times Ahead for the Industry
The machinery industry’s growth trend is thus expected to continue in the second half of 2017 driven by the abovementioned factors as well as cyclical recovery in investment and easing oil prices from the multi-year lows reached in 2016. The industry is anticipated to witness rise in global demand, especially in the emerging markets, driven by rebound in residential and non-residential construction and consumer spending.
Further, the surge in U.S. job openings to a record level and the Treasury Secretary’s encouraging comments on tax reforms will cushion the adverse impact of recent tropical storms — Harvey and Irma. Also, Trump administration’s plan to invest significantly in the country’s infrastructure, if implemented, will boost growth of the industry.
Performance and Zacks Industry Rank
The machinery industry has outperformed the broader market in a year’s time. The industry has gained around 47% over this period, higher than the S&P 500 Index’s corresponding return of 15.7%.
The Zacks Industry Rank of 5 carried by the Zacks Manufacturing- Construction and Mining industry is a testimony to the fact that the industry is in fine shape. The favorable rank places the industry in the top 2% of the 250+ groups enlisted.
Thus, amid such a backdrop, it would be a prudent idea to invest in machinery stocks with compelling growth prospects if you are looking to reap solid returns from your portfolio. Growth investors look for stocks with aggressive earnings or revenue growth potential, which will likely lead to higher stock prices. Here we put a spotlight on machinery stocks that are poised for healthy growth. .
How to Make the Right Choice?
To outpace market returns as well as to take advantage from the above-mentioned factors, we have used the Style Score System to narrow down on stocks with solid growth prospects, sporting a Zacks Rank #1 (Strong Buy) or Zacks Rank #2 (Buy), along with Growth Style Score of A or B. You can see the complete list of today’s Zacks #1 Rank stocks here.
Caterpillar Inc. (CAT - Free Report)
Headquartered in Peoria, IL, this mining behemoth sports a Zacks Rank #1 and has a Growth Score of B. It delivered average positive earnings surprise of 41.4% over the trailing four quarters. Caterpillar also has a long-term expected earnings per share (EPS) growth rate of 9.5%. The Zacks Consensus Estimate for 2017 and 2018 moved up around 23% and 25%, respectively, over the last 60 days.
The Manitowoc Company, Inc. (MTW - Free Report)
Wisconsin-based Manitowoc is another attractive choice with a Zacks Rank #2 and a Growth Score of B. The company delivered average positive earnings surprise of 55.9% in the last four quarters. The Zacks Consensus Estimate for 2017 narrowed to a loss of 14 cents from a loss of 33 cents in the last 60 days. The 2018 estimates for the company also increased to 7 cents from a breakeven level during the same time frame.
H&E Equipment Services, Inc. (HEES - Free Report)
Baton Rouge, LA-based H&E Equipment sports a Zacks Rank #1 and a Growth Score of A. It pulled off an average positive earnings surprise of 8.86% over the past four quarters. Moreover, the Zacks Consensus Estimate for 2018 climbed 21.4% in two months’ time.