U.S. manufactures are expecting to witness a solid first quarter, as the sector is currently growing on the back of improving economic fundamentals. Consecutive upsurge in the major Purchasing Managers' Index (PMI) as well as greater number of jobs offered by manufacturing giants buoys further optimism.
Manufacturers Optimistic About Growth Prospects
Uptick in the key indices of the PMI in the latest Institute for Supply Management (“ISM”) report reveals that the manufacturing sector is poised for growth.
With the U.S. economy gaining momentum, manufacturers have become optimistic that the manufacturing sector in first-quarter 2018 will put up a stellar show.
The Conference Board Leading Economic Index (LEI) improved for the third successive month in January, giving clear signals of stepped up economic activity. Impressive jobs data, upbeat wage rates, a modest inflation and President Trump’s long-awaited $1.5-trillion infrastructure plan provide an impetus to the upside.
Additionally, economic growth of emerging nations, firmer commodity prices in overseas markets and an uplift in global business confidence on account of a stable political environment are expected to improve U.S. manufacturing activities.
Manufacturing Activity Strengthens
The latest ISM report reveals that the PMI was pegged at 60.8% in February, an upside of 1.7% from January. The figure also surpassed the uppermost level of expansion recorded since 2004. A higher than 50 reading of the February PMI index reading undoubtedly verified that scale of economic activities is booming in the U.S. manufacturing sector.
The manufacturing upturn is currently backed by growth in production activity, new orders and inventories, with struggling supply side conditions. The February data revealed that ISM’s New Orders Index and Production Index were both above 60%, signifying that production expansion persists amid demand-supply glut, and capacity and labor restraints.
Moreover, higher New Export Orders Index, Imports Index and Prices Index in February proves that the sector has witnessed modest growth from the previous month.
Further, from January through February the ISM’s Backlog of Orders Index and Inventories Index rallied 3.6 and 4.4 percentage points, respectively. The upside confirms that production requirements will likely remain robust near at hand.
Manufacturers on a Hiring Spree
In February, several companies increased head count in sync with the growing production. In the last month, ISM’s Employment Index was up 5.5 percentage points from January.
Also, per the latest employment report from the Bureau of Labor Statistics, since February 2017 nearly 222,000 jobs were added in the United States in the manufacturing sector. Notably, the manufacturing sector is providing higher employment than other sectors.
Manufacturing jobs not only offers relatively higher wages but also creates multiplier effects within the economy, unlike other service sector jobs. Hence, a booming manufacturing sector is likely to boost the economy as a whole.
Additionally, lower U.S. corporate tax rates and Trump’s impetus to foster overall growth of the manufacturing sector would likely benefit the U.S. manufacturing behemoths moving ahead.
5 Stocks to Bet on
We believe that grabbing well-performing manufacturing stocks will be a rewarding investment strategy at the moment, as the sector is likely to perform better.
Below we have zeroed down five hot picks with a Zacks Rank # (Strong Buy) or 2 (Buy), and a VGM Score of A or B. Notably, Zacks Consensus Estimate for these stocks has been revised upward for the current year over the last 60 days.
Alamo Group, Inc. manufactures, distributes, designs and offers services to the global infrastructure maintenance equipment and agricultural industry. The company carries a Zacks Rank #2 and a VGM Score of B. The Zacks Consensus Estimate for this stock’s earnings has moved north 6.3% to $5.37 per share for 2018.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Kaman Corporation (KAMN - Free Report) operates in the worldwide distribution and aerospace market. The company carries a Zacks Rank #2 and a VGM Score of B. The Zacks Consensus Estimate for this stock’s bottom line has moved north 12.7% to $3.10 per share for 2018.
Milacron Holdings Corp. (MCRN - Free Report) produces, distributes and services customized and engineered systems within the global processing and plastic technology industry. The company carries a Zacks Rank #2 and a VGM Score of A. The Zacks Consensus Estimate for this stock’s earnings has moved north 6.9% to $1.87 per share for 2018.
Columbus McKinnon Corporation (CMCO - Free Report) markets, manufactures and designs cranes, digital power control systems and other material holding products worldwide. The company carries a Zacks Rank #2 and a VGM Score of B. The Zacks Consensus Estimate for this stock’s earnings has moved north 2.6% to $2.00 per share for fiscal 2018 (ending March 2018).
Titan International, Inc. (TWI - Free Report) manufactures and sells tires, wheel and tire assemblies as well as other undercarriage products for off-highway vehicles. The company carries a Zacks Rank #2 and a VGM Score of A. The Zacks Consensus Estimate for this stock’s bottom line has moved north 25% to 35 cents per share for 2018.
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