The industrial sector performed impressively in 2019 despite the fact that the U.S. economy is yet to recover from trade-related jitters. The economy has also lost its pace although it is growing for the 11th year on the trot. In spite of these negatives, several industrial stocks skyrocketed in 2019. Some of those stocks still carry strong growth potential for 2020.
Trade War Hurts Business Spending
Lingering trade conflict with China has resulted in tariff war wherein duties have been levied on hundreds of billion dollars on each other’s goods. The U.S. government has already levied 25% tariff on more than $300 billion of Chinese goods mostly used as cheap inputs for the technology and industrial sectors. On the other hand, China imposed tariffs on more than $100 billion U.S. products mainly from the agricultural sector.
Imposition of tariff on China-made low-cost intermediary products raised the input cost of U.S. manufacturers. Consequently U.S. business spending dropped significantly in 2019. The Institute of Supply Management reported that U.S. manufacturing activities contracted the most in December 2019 in more than a decade.
Industrial Sector Shines Despite Headwinds
Despite several headwinds, industrial stocks have performed quite strongly in 2019. The Industrial Select Sector SPDR (XLI), one of the 11 broad sectors of the S&P 500 Index, rallied nearly 29% in 2019, in line with the benchmark index’s gain. Notably, the XLI has started 2020 from where it ended in 2019 as it is already up 2.3% in the first six trading days.
Interim Trade Deal: A Major Driver
Chinese officials are set to arrive in Washington on Jan 13 in order to sign an interim trade pact known as the phase-one trade deal. Last week, Donald Trump said that he will sign the preliminary trade deal on Jan 15. The deal is expected to at least prevent further escalation of tariff war between the two largest trading countries of the world.
U.S. Trade Representative Robert Lighthizer said the deal will address intellectual-property disputes along with strong enforcement provisions and financial services and currency issues in addition to tariff rollback and higher agricultural purchase. Notably, China has reportedly agreed to substantially raise its agricultural imports from the United States to $40 billion.
On Dec 23, The Wall Street Journal reported that China’s cabinet has agreed to lower tariffs for all trading partners on more than 859 types of products including pharmaceuticals, frozen pork and some high-tech components to below the rates that the most-favored nations enjoy.
A defusing of U.S.-China trade tussle will not only help these two countries, but also revive the global economy, especially the emerging markets and the sagging Eurozone. This in turn will raise demand for U.S. exports, particularly its manufacturing and high-tech products.
Our Top Picks
In line with this impressive trend, we have narrowed down our search to five industrial stocks that skyrocketed in 2019 and still have upside left. Each of our picks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below shows price performance of our five picks in the past year.
Lawson Products Inc. (LAWS - Free Report) distributes products and services to the industrial, commercial, institutional, and government maintenance, repair, and operations marketplace in the United States, Puerto Rico, Canada, Mexico, and the Caribbean. It operates in two segments, Lawson and Bolt.
The company has an expected earnings growth rate of 59.3% for the current year. The Zacks Consensus Estimate for the current year has improved by 5.1% over the last 60 days. The stock has rallied 100% in the past year.
Crawford United Corp. (CRAWA - Free Report) develops and manufactures products primarily for healthcare, education, automotive, aerospace, trucking and petrochemical industries.
The company has an expected earnings growth rate of 12.2% for the current year. The Zacks Consensus Estimate for the current year has improved by 5.3% over the last 60 days. The stock has jumped 93.1% in the past year.
SPX FLOW Inc. (FLOW - Free Report) is a supplier of engineered flow components, process equipment and turn-key systems, along with the related aftermarket parts and services. Its operating segment consists of Food and Beverage, Power and Energy and Industrial.
The company has an expected earnings growth rate of 9.2% for the current year. The Zacks Consensus Estimate for the current year has improved by 1% over the last 60 days. The stock has climbed 50.5% in the past year.
Graphic Packaging Holding Co. (GPK - Free Report) provides paper-based packaging solutions to food, beverage, foodservice and other consumer products companies. It operates through three segments: Paperboard Mills, Americas Paperboard Packaging, and Europe Paperboard Packaging.
The company has an expected earnings growth rate of 13.1% for the current year. The Zacks Consensus Estimate for the current year has improved by 1% over the last 60 days. The stock has soared 38.9% in the past year.
DXP Enterprises Inc. (DXPE - Free Report) is engaged in distributing maintenance, repair, and operating (MRO) products, equipment, and services to energy and industrial customers in the United States. It operates in three segments: Service Centers, Supply Chain Services and Innovative Pumping Solutions.
The company has an expected earnings growth rate of 10.5% for the current year. The Zacks Consensus Estimate for the current year has improved by 2.2% over the last 60 days. The stock has advanced 22.9% in the past year.
(We are reissuing this article to correct a mistake. The original article, issued on January 10, 2020, should no longer be relied upon.)