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Auto Sector Powers U.S. Industrial Production: 5 Great Picks


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Industrial production climbed for the third straight month in August, as robust growth in automobile manufacturing outpaced lackluster production in other sectors. A better-than-expected upsurge in the headline numbers was also backed by an uptick in mining and utilities output.

Some economists fear that escalating trade tensions might curb business spending. However, a dip in joblessness, higher pay packages and expansionary fiscal measures unwrapped by the Republican government are likely to shore up corporate outlay and factory activity in the days ahead.

Against this opportune backdrop, investors can bet on selective manufacturing, utilities and mining stocks to fetch alluring returns.

Motor Vehicles, Parts Production Lead Gains

U.S. industrial production logged healthy 0.4% growth in August, subsequent to an upwardly revised 0.4% rise in July. The metric also advanced 4.9% over the past 12-month tenure and is on track to tap the highest yearly growth since 2010.

Manufacturing output climbed 0.2% in August, primarily on the back of 0.4% growth in motor vehicles and parts production. Trucks and cars were manufactured at an annual rate of 11.54 million units in August - the fastest pace since the last five months.

Mining output recorded a monthly gain of 0.7% in the past month. The index advanced 14.1% over the past year due to robust natural gas and oil production. Rising energy production is expected to support machinery, pipeline and other equipment-making factories.

Output for utilities rebounded in August with a monthly gain of 1.2%, after suffering declines in the past three months. The upswing was powered by a rise in electricity usage in the summer months.

Can Trade Tensions Wreck Industrial Gains?

Some analysts warn that tariff-related uproar rooted by President Trump and other overseas countries could weigh over corporate expenditure. U.S. manufactures are offering products at higher prices to defy setbacks like shortage in skilled workers, and higher tariff and transit expenses. Inflation in prices for consumers might curb domestic demand ahead.

Nevertheless, the December-enacted tax overhaul, increased government spending, rising oil prices and the President's long-awaited $1.5-trillion investments in infrastructure will likely expedite business investments.

The Institute for Supply Management manufacturing gauge surprisingly jumped to a 14-year high in August. The index was pegged at 61.3% last month, indicating that the bulk of manufacturing companies within the economy are gaining strength.

U.S. companies are not only hiring more but also offering attractive perks to employees. The economy created 201,000 new jobs in August and wage rates notched the best annual growth in the past nine years. The picture clearly shows that America is weathering the trade war-related doldrums.

The Federal Reserve is anticipated to impose the third rate hike of 2018 at the end of this month, in light of the economy's strength. 

Additionally, capacity utilization figures seem to be in keeping with the Fed's views on the economy. In August, capacity utilization increased 0.2% to 78.1%, signaling further upside in industrial growth, before inflation really kicks in.

Our Picks

Solid gain in industrial production indicates that the U.S. economy is on firm footing. The fact that capacity utilization is still below its long-term average also hints that the metric will likely continue to rally on the back of stronger economic activity.  

At this juncture, apportioning your hard-earned money in manufacturing, mining and utilities stocks with high growth potential will be a wise decision. We have handpicked five such top-ranked stocks that will likely add sparkle to your portfolio.

These picks have a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a VGM Score  of A or B.

Luxfer Holdings PLC  LXFR manufactures, designs and supplies high-performance materials and high-pressure gas component gadgets. The Zacks Consensus Estimate for earnings has moved up 10.1% to $1.42 per share for 2018. The company's projected year-over-year earnings growth rate is currently pegged at 39.2% and 16.2% for 2018 and 2019, respectively.Luxfer Holdings' shares have gained 66.9% in the past year. The company sports a Zacks Rank #1 and has a VGM Score of A. You can see  the complete list of today's Zacks #1 Rank stocks here .

SPX FLOW, Inc. FLOW provides different types of engineered solutions in the global forum. The company holds a Zacks Rank 2 and has a VGM Score of B. The Zacks Consensus Estimate for earnings has moved up 0.8% to $2.43 per share for 2018. The company's projected year-over-year earnings growth rate is currently pegged at 91.3% and 26% for 2018 and 2019, respectively. SPX FLOW's shares have gained 32% in the past year.

Caterpillar Inc. CAT produces and sells mining and construction equipment, natural gas and diesel gas engines, diesel-electric locomotives and industrial gas turbines. The company holds a Zacks Rank 2 and has a VGM Score of A. The Zacks Consensus Estimate for earnings has moved up 8.4% to $11.65 per share for 2018. The company's projected year-over-year earnings growth rate is currently pegged at 69.3% and 11% for 2018 and 2019, respectively. Caterpillar's shares have gained 17% in the past year.

The Timken Company  TKR manufactures, engineers, and sells transmissions, bearings, belts, gearboxes, couplings for the global market. The company has a Zacks Rank 2 and VGM Score of A. The Zacks Consensus Estimate for earnings has moved up 5.3% to $4.17 per share for 2018. The company's projected year-over-year earnings growth rate is currently pegged at 58.6% and 11.6% for 2018 and 2019, respectively. Timken's shares have gained 2.3% in the past year.

TriMas Corporation TRS manufactures andsells aerospace, consumer, petrochemical, refinery, industrial, and oil and gas markets globally. The company carries a Zacks Rank 2 and a VGM Score of B. The Zacks Consensus Estimate for earnings has moved up 1.2% to $1.72 per share for 2018. The company's projected year-over-year earnings growth rate is currently pegged at 22.9% and 7.9% for 2018 and 2019, respectively. TriMas' shares have gained 19% in the past year.

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SPX FLOW, Inc. (FLOW): Free Stock Analysis Report

Caterpillar Inc. (CAT): Free Stock Analysis Report

Luxfer Holdings PLC (LXFR): Free Stock Analysis Report

TriMas Corporation (TRS): Free Stock Analysis Report

Timken Company (The) (TKR): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Investing , Business , Stocks
Referenced Symbols: FLOW , CAT , LXFR , TRS , TKR



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