Durable orders posted impressive gains in July, lifted by large
orders for aircraft. The metric increased 22.6% in July, following
an upward revision for gains in June to 2.7%. The sole jarring note
in the report was the decline in orders for non-military capital
goods. These orders dipped 0.5% in July.
Aircraft, Auto Orders Shine
The major driver of growth in July was transportation orders, which
moved up 74.2%, the largest-ever increase. This in turn was lifted
by a 318% increase in civilian aircraft bookings. This is the
highest increase in orders since Jan 2011. The Boeing Company (
) said that it received orders for 324 aircraft in July, another
record number, making a significant contribution to this upsurge.
At the same time, orders for the auto sector increased the highest
in five years. Motor vehicles and auto parts orders increased
10.2%, following a 1.3% decline in June.
Decline in Non-Defense Orders
The decline in orders for non-defense capital goods orders was the
sole blot in the durable orders report. Orders for business
equipment dipped 0.5% in July, contrary to most estimates which
predicted a marginal increase.
However, the decline in orders was accompanied by a revision to the
June numbers. The increase in non-defense capital goods orders for
June was revised upward to 5.4%. This is the largest upward
revision since Jan 2011.
Moreover, capital goods orders increased at an annualized rate of
14.9% over the last six months. This is the fastest pace of
increase since Jun 2013. During the same period, shipments
increased 10.8%. This is the largest advance experienced since 2011
Capital Goods Orders Revision Crucial
There are several reasons why revisions in capital goods orders are
more significant than the more noticeable gains being reported.
Firstly, the primary growth driver of durable orders is aircraft
bookings. These orders will take a considerable amount of time to
execute and may be cancelled during this period. In the long term,
this is certainly good news. However, these orders may not result
in higher production right now.
Additionally, sales surveys are better indicators of the automotive
sector. This is particularly significant because this is an advance
report, which may be revised significantly later.
This is why the revisions in business equipment orders are
important. Firstly, they are firmer indicators for an earlier
period. Further, companies must be reasonably confident that they
can sell the goods they produce using such equipment. This bodes
well for the economy as a whole.
Overall, data for capital goods orders looks promising. Analysts
believe that the second half of the current year will witness a
higher level of capital expenditure. Below we present three stocks
which will gain from this trend, each of which also has a good
) is a global multi-industry leader in high-technology engineering
and manufacturing. It is engaged in the design, manufacture and
sale of a wide-range of engineered products and the provision of
The company is headquartered in New York City and employs
approximately 8,500 people worldwide. ITT continues to benefit from
ongoing restructuring initiatives. In 2013, the company posted
sales and revenues of $2.5 billion. ITT reported strong
first-quarter 2014 results with growth across both top and bottom
ITT holds a Zacks Rank #2 (Buy) and has expected earnings growth of
21%. The forward price-to-earnings ratio (P/E) for the current
financial year (F1) is 19.82.
) is an applied solutions company that specializes in a diverse
range of applications such as fluid and metering technologies;
health and science technologies; and fire, safety and other
products built to customer specifications.
Serving high-growth niche markets, the company operates under three
business segments. These are Fluid & Metering Technologies,
Health & Science Technologies and Fire & Safety/Diversified
Products. IDEX sells its products to original equipment
manufacturers (OEMs), as well as to direct end-use customers across
The company currently holds a Zacks Rank #2 (Buy) and has expected
earnings growth of 14.6%. It has a P/E (F1) of 21.93.
) is one of the world's leading producers of precision dispensing
equipment that applies adhesives, sealants and coatings to a broad
range of consumer and industrial products during manufacturing
The company also manufactures technology-based systems for curing
and surface treatment processes. Headquartered in Westlake, Ohio,
Nordson markets its products via a direct operations network spread
across 30 countries. The company purchased Avalon Laboratories
Holding Corp. earlier this month.
Apart from a Zacks Rank #2 (Buy), Nordson has expected earnings
growth of 14.1%. It has a P/E (F1) of 21.09.
The uptrend in orders for commercial capital goods is a welcome
sign for the economy. The spurt in aircraft orders is primarily due
to foreign purchases while the capital goods metric is an indicator
of strong domestic demand. In such a business environment, these
stocks would make good additions to your portfolio.
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ITT CORP (ITT): Free Stock Analysis Report
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