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Industrial Production Posts Highest Jump in 4 Months: 5 Picks

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The Federal Reserve’s report on industrial production released last Friday provided fresh evidence that the country’s manufacturing sector is in good shape. Nearly all major manufacturing industries experienced gains with both durable and non-durable goods experiencing an increase in output.

Though a rebound in construction and energy related activity also contributed to gains, the jump in manufacturing activity was particularly notable. This is because this increase comes on the back of encouraging readings for regional gauges. Given that tax cuts are likely to boost manufacturing stocks strongly this year, it makes good sense to pick up stocks from this sector.

Rise in Manufacturing Highest Since October

Industrial production increased by 1.1% in February, easily exceeding the consensus estimate of a 0.3% increase. This was the largest increase in four months and a significant improvement for the metric, following January’s downwardly revised 0.3% decline. Particularly notable was the 1.2% increase in manufacturing output, the strongest gain experienced since October 2017.

Digger deeper into the components of industrial production, we find that the output of consumer goods inched up 0.1%. Output for business equipment increased by 1% while the index for defense and space equipment gained 1.5%. Construction supplies experienced a 2.3% increase in output while materials production rose 1.6%.

New York, Philly Fed Indexes Experience Gains

Data from the Federal Reserve Bank of Philadelphia and the Federal Reserve Bank of New York released earlier this month indicated that factory activity growth remained strong across several eastern states in March.

The Philadelphia Fed manufacturing index slipped to 22.3 from 25.8 in February. But, the gauge remained well above zero, which indicates improving conditions. In fact, the survey found out that nearly 37% of the manufacturers felt that conditions have improved over the month.

Also, the Empire State manufacturing index that had been lagging Philly, climbed to a reading of 22.5 from 13.1 in February. The survey showed that 38% of respondents felt manufacturing activity had improved. (Read: U.S. Manufacturing Activity Holds Up Well: 5 Solid Buys)

Our Choices

Fresh data on industrial production indicates that manufacturing activity continued to remain strong in February. Additionally, data released by the Federal Reserve Banks of Philadelphia and New York Federal earlier this month indicates that manufacturing is likely to maintain its current pace in March.

Tax cuts and strong economic conditions have provided a firm basis for manufacturing activity. Adding manufacturing stocks to your portfolio makes for a smart choice at this point. 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, each of which has a Zacks Rank #1 (Strong Buy) and a good VGM Score. You can see the complete list of today’s Zacks #1 Rank stocks here.

Global Brass and Copper Holdings, Inc. (BRSS - Free Report) is a converter, fabricator, distributor and processor of copper and brass products primarily in North America.

Global Brass and Copper has a VGM Score of A. The company has expected earnings growth of 21.2% for the current year. The Zacks Consensus Estimate for the current year has improved by 21% over the last 30 days.

Harsco Corporation (HSC - Free Report) is an industrial services and engineered products company.

Harsco has a VGM Score of A. The company has expected earnings growth of 48.7% for the current year. The Zacks Consensus Estimate for the current year has improved by 22.2% over the last 30 days.

Applied Industrial Technologies, Inc. (AIT - Free Report) is a premium value-added industrial product distributor to original equipment manufacturer (OEM) and maintenance, repair, and operations (MRO) customers.

Applied Industrial Technologies a VGM Score of B. The company has expected earnings growth of 38.4% for the current year. The Zacks Consensus Estimate for the current year has improved by 0.9% over the last 60 days.

Encore Wire Corporation (WIRE - Free Report) is a low-cost manufacturer of copper electrical building wire and cable products.

Encore Wire has a VGM Score of B. The company has expected earnings growth of 13.8% for the current year. The Zacks Consensus Estimate for the current year has improved by 40.8% over the last 30 days.

Zebra Technologies Corporation is a designer, manufacturer and seller of a variety of automatic identification and data capture (AIDC) products.

Zebra Technologies has a VGM Score of B. The company has expected earnings growth of 17% for the current year. The Zacks Consensus Estimate for the current year has improved by 10.9% over the last 30 days.

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