U.S. manufacturing output surged significantly in December. Despite a volatile 2018, the sector is still expanding and generating impressive number of jobs. Manufacturers have increased capital spending and hiring driven by massive tax overhaul, deregulation, strong domestic economy and upbeat business sentiment.
U.S. manufacturing sector, which constitutes approximately 12% of the country’s GDP, has been witnessing resurgence under the Trump administration since 2017, shrugging off its lengthy spell of weak productivity and sluggish growth. At this stage, investment in manufacturing stocks with a favorable Zacks Rank and strong growth potential will be a prudent decision. Robust Manufacturing Output in December On Jan 18, Federal Reserve reported that manufacturing output soared 1.1% in December 2018, its highest gain in 10 months. Higher production of motor vehicles, construction supplies, business supplies and materials provided a boost to manufacturing sector. As a result of the surge in manufacturing output, U.S. industrial production rose 0.3% in December, outpacing the consensus estimate of 0.2%. On Jan 3, the Institute for Supply Management (ISM) reported that the U.S. manufacturing expanded in December 2018 for the 116th consecutive month. Over the last 12 months, the average value of the manufacturing index has been pegged at 58.8, reflecting strong growth in the sector. Notably, any reading above 50 indicates overall growth of the manufacturing sector. Importantly, Customers’ Inventories Index was pegged at 41.7 in December, reflecting 27th consecutive month of low (below 50 benchmark level) customer inventory. This will act as a major catalyst for the manufacturing sector in 2019. Strong Hiring in Manufacturing Sector According to the Department of Labor, the manufacturing sector generated 284,000 jobs in 2018, highest since 1997. This sector generated 207,000 jobs in 2017. Within the sector, durable goods industries, which produce industrial intermediaries, generated nearly 89% of job additions. The National Association of Manufacturers reported that about 500,000 manufacturing jobs are currently available in the United States. A recent study by the Manufacturing Institute and Deloitte has projected that by the end of 2025, the U.S. manufacturing sector will witness shortages of around 2 million skilled workers. VIDEO Positive Developments on Trade War Front On Jan 18, Bloomberg reported that China has offered to ramp up imports from the United State in the next six years. Total value of these imports will be $1 trillion which will bring down the United States’ massive trade deficit with China to zero in 2024. Notably, the United States had a trade deficit of $323 billion with China in 2018. On Jan 16, The Wall Street Journal reported that the U.S. government is contemplating lifting some tariffs imposed on China. This will act as an incentive to the Asian economic giant to make deeper concessions to the United States. However, a Treasury Department spokesperson later denied the report. Our Picks At present, the U.S. economy is firmly placed on growth trajectory. Strong manufacturing goods orders are normally associated with stronger economic activity. Considering these positives, investing in manufacturing stocks with strong growth potential will be a lucrative move. We narrowed down our choice to five stocks each of which carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). The chart below shows price performance of our five picks in the past one year. DXP Enterprises Inc. DXPE is a leading products and service distributor that adds value and total cost savings solutions to industrial customers in the United States, Canada, Mexico and Dubai. It sports a Zacks Rank #1. You can see The company has expected earnings growth of 33.5% for current year. The Zacks Consensus Estimate for the current year has improved by 6.7% over the last 60 days. the complete list of today’s Zacks #1 Rank stocks here. Milacron Holdings Corp. manufactures, distributes and services engineered and customized systems within the plastic technology and processing industry. It flaunts a Zacks Rank #1. The company has expected earnings growth of 15.1% for current year. The Zacks Consensus Estimate for the current year has improved by 0.5% over the last 60 days. Twin Disc Inc. TWIN designs, manufactures and sells heavy duty off-highway power transmission equipment. It carries a Zacks Rank #2. The company has expected earnings growth of 21% for current year. The Zacks Consensus Estimate for the current year has improved by 1.8% over the last 60 days. Deere & Co. DE manufactures agricultural, construction, and forestry machinery, diesel engines, drivetrains used in heavy equipment, and lawn care equipment. It carries a Zacks Rank #2. The company has expected earnings growth of 21.8% for current year. The Zacks Consensus Estimate for the current year has improved by 0.4% over the last 60 days. Colfax Corp. CFX is a global supplier of fluid handling products, including pumps, fluid handling systems and specialty valves. It carries a Zacks Rank #2. The company has expected earnings growth of 17% for current year. The Zacks Consensus Estimate for the current year has improved by 3.1% over the last 60 days. Looking for Stocks with Skyrocketing Upside? Zacks has just released a Special Report on the booming investment opportunities of legal marijuana. Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look. See the pot trades we're targeting>>