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ISM Manufacturing Gauge Logs Best Gain in 4 Months: 5 Picks

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The U.S. manufacturing sector continues to gather steam despite sustained uncertainty over the White House international trade policy. In June, the Institute for Supply Management’s (ISM) manufacturing gauge logged its best gain in the last four months.

Monday’s ISM report mirrored perked up factory activity in the world’s strongest economy, raising hopes of sturdier GDP growth in the second quarter and additional Fed rate hikes in the back half of the year.

Business investment continues to gain strength on grounds of a $1.5 trillion tax cut package offered by Trump to appease all and sundry. U.S. manufacturers are not only offering products at higher prices, but also adding more jobs to the market. Notably, some of them also plan to tactically shift production sites overseas in order to shun the impact of retaliatory tariffs against America.

Against this opportune backdrop, investors can bet on selective manufacturing stocks to fetch alluring returns.

U.S. Manufacturing Incredibly Strong in June

Yesterday’s report disclosed that manufacturing index in June jumped to 60.2% from 58.7% in the prior month and outpaced the market forecast for a dip to 58.5%.

In this domain, 17 out of 18 industries witnessed expansion last month, with the supplier deliveries, production and inventories indexes climbing 6.2 points, 0.8 points and 0.6 points to 68.2%, 62.3% and 50.8%, respectively. Also, new export orders picked up 0.7 points last month to 56.3%. New orders and price indexes were pegged at 63.5% and 76.8%, respectively.

Manufacturers on Hiring Spree

Defying fears of trade war, U.S. manufacturers have made it clear that hiring will not be ceased. Exclusively, the U.S, manufacturing sector added around 18,000 jobs in May, adding 6,000 employees in machinery. The latest ISM data revealed that the Employment Index reached 56% in June, reflecting an upswing for the 21th consecutive month. So far this year, the sector is booming with a recruitment rate of 259,000 after 222,000 new jobs last year after it hit a pause button in 2016 and 2015.

Also, manufacturers are paying better than other jobs. Average weekly earnings for manufacturing employees came in at $1,097.52 last month, more than $928.74 for the private sector taken together.

What Stoked the Rally?

June’s report confirmed that irrespective of workforce shortages, material scarcity and transportation setbacks, scale of production in the United States continued to rally for the 22nd consecutive month. Also, an above 60 reading in new orders’ gauge for the 14th straight month, signified strong demand.

Apprehension imbibed by protectionist stance of the Trump administration and supply-side setbacks were outpaced by ramp-up in business spending.

Corporate spending across manufacturing industries is shoring up at a healthy pace on the back of the December enacted tax overhaul, increased government spending and rising oil prices.

However, the absolute benefit of lower corporate taxes has not yet materialized. Going forward, tax cuts will likely expedite investments in factories, new equipment and other capital goods.

Top Five Picks

The U.S. economy is firmly placed at present and economic data is mostly favourable. The manufacturing sector (accounting 12% of the U.S. GDP) will likely continue to rally on the back of sturdier economic activity.  

In sync with this, apportioning your hard-earned money in manufacturing stocks will be a wise decision. We have handpicked five top-ranked manufacturing picks that will likely add a sparkle to your portfolio.

These picks have a Zacks Rank #1 (Strong Buy) or 2 (Buy) and have witnessed positive earnings estimate revisions for the last 60 days.

Regal Beloit Corporation (RBC - Free Report) manufactures, designs, and sells electrical motion controls, electric motors, power transmission and power generation products in the global forum.

The Zacks Consensus Estimate for earnings has moved up 5.6% to $5.88 per share for 2018, in the last 60 days. Notably, the projected year-over-year earnings growth rate for the company is currently pegged at 20.7% and 10.2% for 2018 and 2019, respectively. Regal Beloit’s shares have gained 12.4% in the past three months. The company sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Twin Disc, Inc. (TWIN - Free Report) manufactures, designs, and sells heavy-duty and marine power transmission equipment across the globe.

The company sports a Zacks Rank #1. The Zacks Consensus Estimate for earnings has moved up 104.5% to 90 cents per share for fiscal 2018, in the last 60 days. Notably, the projected year-over-year earnings growth rate for the company is currently pegged at 319.5% and 66.7% for fiscal 2018 and 2019, respectively. Twin Disc’s shares have gained 8.9% in the past three months.

Actuant Corporation (ATU - Free Report) manufactures, designs, and distributes industrial systems and products globally.

The company carries a Zacks Rank #1. The Zacks Consensus Estimate for earnings has moved up 2.9% to $1.06 per share for fiscal 2018, in the last 60 days. Notably, the projected year-over-year earnings growth rate for the company is currently pegged at 27.7% and 21.3% for fiscal 2018 and 2019, respectively. Actuant’s shares have gained 25.8% in the past three months.

Kaman Corp. (KAMN - Free Report) operates in the distribution and aerospace markets.

The company carries a Zacks Rank #2. The Zacks Consensus Estimate for earnings has moved up nearly 1% to $3.13 per share for 2018, in the last 60 days. Notably, the projected year-over-year earnings growth rate for the company is currently pegged at 40.4% and 12% for 2018 and 2019, respectively. Kaman’s shares have gained 11.4% in the past three months.

Welbilt, Inc. (WBT - Free Report) manufactures, designs, and services cold and hot category commercial foodservice equipment in the global forum.

The company carries a Zacks Rank #2. The Zacks Consensus Estimate for earnings has moved up 1.1% to 89 cents per share for 2018, in the last 60 days. Notably, the projected year-over-year earnings growth rate for the company is currently pegged at 15.6% and 22.7% for 2018 and 2019, respectively. Welbilt’s shares have gained 15.3% in the past three months.

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