Back to top

Image: Bigstock

Manufacturing Activity Improves in May: 4 Stocks to Buy

Read MoreHide Full Article

U.S. manufacturing data somewhat stabilized, easing off from an 11-year low in May, indicating that the worst of the economic downturn is over with businesses starting to reopen in most states.

It could take years for the economy to recover because of the high unemployment rate owing to the coronavirus-related lockdown. However, a slight rise in factory activity is likely to boost confidence among millions of Americans.

Manufacturing Activity Slowly Recovering

Factories in the United States continued to reduce output and shed jobs in May. However, the pace of deterioration somewhat moderated as the federal government moved to ease coronavirus-related restrictions on its economies. The Institute for Supply Management (ISM) said on Jun 1 that its index of national factory activity rose to a reading of 43.1 last month from 41.5 in April., which was the lowest level since April 2009. Factory activity accounts for 11% of the U.S. economy.  A reading below 50 indicates contraction in manufacturing.

This is also the first increase in the ISM index since January, mirroring improvements in regional manufacturing. Also, the ISM’s forward-looking new orders sub-index increased to a reading of 31.8 in May from 27.1 in April. The survey’s measure of order backlogs at factories climbed to 38.2 last month after declining to a reading of 37.8 in April.

U.S. Economy Tries to Bounce Back

Although the reading is far from impressive, the rise in manufacturing activity in May is a sign that the economy is finally making efforts to bounce back. There was also marginal improvement in the ISM’s measure of factory employment, which increased to 32.1 in May after plunging to 27.5 in the prior month, the lowest since February 1949.

Also consumer confidence unexpectedly improved in May. The Conference Board said its consumer confidence index rose to 86.6 last month from a downwardly revised 85.7 in April. Consumer spending is important to U.S. economic well-being given that it makes for 70% of the country’s GDP.

Our Choices

April was one of the worst months when factory activity plunged to an 11-year low thanks to business and factory closures, and more than 21 million job losses. However, the May figures might just once again boost confidence among millions of Americans. Given this situation, it would be prudent to watch out for five stocks that are likely to rally on improved manufacturing activity in May.

Titan International, Inc. (TWI - Free Report)  is a leading global manufacturer of off-highway wheels, tires, assemblies and undercarriage products. The company globally produces a broad range of products to meet the specifications of original equipment manufacturers and aftermarket customer.

The company’s expected earnings growth rate for the current year is 35.5%. The company’s shares have increased 1.6% over the past 30 days.  Titan International carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

DXP Enterprises, Inc. (DXPE - Free Report) provides innovative pumping solutions, supply chain services and maintenance, repair, and operating and production services. These emphasize and utilize the company’s vast product knowledge and technical expertise in rotating equipment, bearings, power transmission, metal working, industrial supplies and safety products and services.

The company’s expected earnings growth rate for next year is 3.6%. The Zacks Consensus Estimate for current-year earnings has improved 3.1% over the past 30 days. DXP Enterprise sports a Zacks Rank #1.

Astec Industries, Inc. (ASTE - Free Report) is a leading manufacturer and marketer of road building equipment. The company sells equipment used in each phase of road building, from quarrying and crushing the aggregate to applying the asphalt.

The company’s expected earnings growth rate for next year is 34.1%. The Zacks Consensus Estimate for current-year earnings has improved more than 100% over the past 30 days. Astec Industries has a Zacks Rank #2.

Zebra Technologies Corporation (ZBRA - Free Report) builds tracking technology and solutions that generate actionable information and insight, giving companies unprecedented visibility into their businesses by giving physical things a digital voice.

The company’s expected earnings growth rate for next year is 28.3%. The company’s shares have increased 17.5 in the past one month. Zebra Technologies holds a Zacks Rank #2.

5 Stocks to Soar Past the Pandemic: In addition to the companies you learned about above, we invite you to learn about 5 cutting-edge stocks that could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of the decade.

See the 5 high-tech stocks now>>