The U.S. manufacturing sector has been languishing in the correction territory for quite some time now. And market pundits started to believe that manufacturing is in recession. Predominantly, the U.S.-China trade dispute appeared to have dented business sentiments.
However, factory activities rebounded in January and expanded for the first time in six months. The recent preliminary trade deal reduced tensions among the world’s two largest economies and reduced manufacturers’ apprehensions about an increase in tariffs. Banking on such upbeat manufacturing numbers, top manufacturers are poised to ramp up profits.
Manufacturing Recession Fears Squashed, Activities Rebound
According to the Institute of Supply Management, its manufacturing index climbed to 50.9 in January from an upwardly revised 47.8 in December. The index scaled beyond the 50 mark, which separates expansion from contraction. Analysts, by the way, were expecting a reading of 48.5.
Strength in new orders, production and employment supported the gains. The gauge of new orders increased 4.4 points to 52 in January, the highest reading since July. One of the ISM survey respondents said that “our business is starting 2020 stronger than we finished 2019, as we saw a dramatic downturn in orders over the last four months of 2019.” Productions also turned positive, while employment in the manufacturing sector increased. The employment index hit 46.6 last month compared with 45.2 in the prior month.
But most importantly, easing of trade tensions with China and signing of a new trade deal with Mexico and Canada effectively boosted manufacturing activities. After all, high tariffs are always a concern for manufacturers.
Trade Deals: Blessing for Manufacturers
The Trump administration’s recent phase-one trade deal with China lessened the burden on global economic growth created by trade imbalances, and in turn boosted manufacturing activities. Lest we forget, the United States and China together account for 35% to 40% of the world’s economy, and thus have a significant influence on international growth. And since the negotiations have gone well between the countries, business confidence has improved, driving capital expenditure and in turn stocks.
The United States said that China has agreed to increase import of commodities in 2020. China has also agreed to protect U.S. intellectual property rights and has given assurance of not manipulating its currency. The United States, in the meanwhile, has agreed not to impose extra tariffs on nearly $160 billion of Chinese consumer electronics and toys.
The House of Representatives meanwhile saw both the Democrats and Republicans united in passing an updated version of the 25-year-old NAFTA that many economists believe will eventually prove favorable for the U.S. economy, particularly manufacturing activities.
5 Big Gainers As the key measure of U.S. factory, mining and utility output surpassed expectations, industrial stocks in particular are expected to gain. We have, thus, selected five such stocks that flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy). Graco Inc. GGG designs, manufactures, and markets systems and equipment used to move, measure, control, dispense, and spray fluid and powder materials. The company currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has moved up 6.5% over the past 60 days. The company, which is part of the Manufacturing - General Industrial industry, is expected to post earnings growth of 6% and 4.2% in the next quarter and current year, respectively. Tennant Company TNC designs, manufactures, and markets floor cleaning equipment. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has risen 0.7% over the past 60 days. The company’s expected earnings growth rate for the current year is 30.7% compared with the Manufacturing - General Industrial industry’s projected rise of 7.3%. Lindsay Corporation LNN provides water management and road infrastructure products and services. The company currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has moved 4.7% north over the past 60 days. The company’s expected earnings growth rate for the current year is 85.5% compared with the Manufacturing - Farm Equipment industry’s projected rise of 1.5%. You can see the complete list of today’s Zacks #1 Rank stocks here. The Manitowoc Company, Inc. ( MTW Quick Quote MTW - Free Report) provides engineered lifting equipment for the construction industry. The company currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has risen 9.4% over the past 90 days. The company’s expected earnings growth rate for the current year is 190.6%, in contrast to the Manufacturing - Construction and Mining industry’s projected decline of 10.7%. Enerpac Tool Group Corp. EPAC designs, manufactures, and distributes a range of industrial products and systems. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has climbed 1.4% over the past 60 days. The company’s expected earnings growth rate for the current year is 2.7%, in contrast to the Manufacturing - Tools & Related Products industry’s projected decline of 5.2%. 7 Best Stocks for the Next 30 Days
Just released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers “Most Likely for Early Price Pops.”
Since 1988, the full list has beaten the market more than 2X over with an average gain of +24.7% per year. So be sure to give these hand-picked 7 your immediate attention.
See 7 handpicked stocks now >>