Back to top

Can U.S. Manufacturing Survive a Trade War? 5 Top-Ranked Picks

Read MoreHide Full Article

In the latest episode of a developing trade conflict between the two largest economies in the world, China has announced fresh tariffs on 106 U.S. products. The move is likely to exacerbate fears surrounding an impending trade war between the two countries. However, an actual date from which these duties would be levied was not announced.

Meanwhile, key White House officials downplayed trade war concerns, hinting that there was still room for negotiations on the issue. Also, despite a few jitters, recent data from the sector indicates that manufacturing is in fine fettle. This is why investing in selecting manufacturing stocks makes for a profitable option at this time.

Trump Administration Allays Trade War Fears  

On Wednesday, key White House officials attempted to allay concerns about a possible trade war with China. Instead, they chose to characterize proposed tariffs as a “threat”, designed to aid the U.S. economy. In an interview with Fox Business Network, President Trump’s economic advisor Larry Kudlow said tariffs were “just the first proposal” when it came to resolving a lingering trade dispute.

Kudlow added that back-channel discussions and negotiations would also come into play. Meanwhile, Trump tweeted: “We are not in a trade war with China, that war was lost many years ago by the foolish, or incompetent, people who represented the U.S.”

At the same time, White House press secretary Sarah Huckabee Sanders refused to confirm whether proposed tariffs would indeed be imposed. Meanwhile, China's Ambassador to the United States Cui Tiankai said his country would prefer to resolve this trade dispute via discussions. However, "it takes two to tango," he added.

Latest Data Reflects Sector Resilience

The latest report on the U.S. manufacturing sector depicts an extremely positive picture. New orders for goods manufactured in the United States increased by 1.2% in February. While factory orders came in under the estimated level of 1.5%, it represents a strong rebound from January’s decline of 1.3%. Notably, orders for machinery increased by 1.2%. Orders for mining, oil and gas field machinery increased by 1.8%.

Moreover, the ISM index for national factory activity was recorded at 59.3 in March compared with 60.8 in February. Notably, the February ISM manufacturing reading marked its highest level in 14 years.

Additionally, the IHS Markit U.S. Manufacturing PMI came in at 55.6 in March compared with 55.3 in February. The average PMI reading for the first quarter of 2018 reflects the best quarterly performance since the third quarter of 2014. (Read: U.S. Manufacturing Sector Remains Strong: 5 Top-Ranked Picks)

Our Choices

Even though China’s latest salvo has increased chances of a trade war, the prospects for negotiations on the issue remain bright. Also, White House officials have refused to confirm if proposed tariffs would at all be imposed. China has also indicated its willingness to enter into talks on the issue.

Meanwhile, the latest economic data on the sector remains extremely encouraging. Adding manufacturing stocks to your portfolios looks like a prudent option 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.

DMC Global Inc. (BOOM - Free Report) is involved in the technical products and processes arena. Its operating sector consists of industrial infrastructure and oilfield products and services.

DMC Global has a VGM Score of A. The company’s projected growth rate for the current year is more than 100%.The Zacks Consensus Estimate for the current year has improved by 9.6% over the last 30 days.

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

Harsco 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 60 days.

Heritage-Crystal Clean, Inc. (HCCI - Free Report) offers parts cleaning and containerized waste services to the automotive repair and manufacturing services industries.

Heritage-Crystal Clean has a VGM Score of A. The company’s projected growth rate for the current year is 35.6%. The Zacks Consensus Estimate for the current year has improved by 0.8% over the last 30 days.

Houston Wire & Cable Company is one of the largest distributors of specialty wire and cable and related services in the U.S. electrical distribution market.

Houston Wire & Cable has a VGM Score of A. The company’s expected earnings growth for the current year is more than 100%. The Zacks Consensus Estimate for the current year has improved by more than 100% over the last 30 days.

UniFirst Corporation (UNF - Free Report) is involved in the rental, lease and sale of work clothing, uniforms, protective apparel, career wear, and facility service products to businesses in virtually all industrial categories.

UniFirst has a VGM Score of B. The company has expected earnings growth of 25.7% for the current year. The Zacks Consensus Estimate for the current year has improved by 36% over the last 30 days.

Today's Stocks from Zacks' Hottest Strategies

It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6%, and +67.1%.

And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.

See Them Free>>

More from Zacks Analyst Blog

You May Like