Factory Orders Soar as Manufacturing Rebounds: 5 Winners

The U.S. manufacturing sector, which suffered over the past year, is finally showing signs of a rebound as new orders and production continue to increase. The Commerce Department reported that new orders for U.S.-made manufactured goods jumped 1.4% in February after declining 3.8% in January.

This was also higher than the consensus estimate of a rise of 1%. Year over year, factory orders increased 1% in February.

Higher orders for commercial aircraft and motor vehicles drove the solid jump in February. Orders for commercial aircraft surged 24.6%, while orders for motor vehicle bodies and parts rose 0.3%. Overall transportation orders climbed 3.3%. Orders for machinery increased 1.8%, driven by a solid jump in mining, gas and oil fields and machinery, which advanced 12.5%.

Also, shipment for manufacturing goods rose 1.4%. Orders for non-defense capital goods, excluding aircraft, increased 0.7% in February.

The manufacturing sector finally appears to be on the path to recovery. The report comes just a day after the Institute for Supply Management’s (ISM) survey showed that its manufacturing PMI rose to 50.3 in March, the first and highest reading above 50 since September 2022.

The March reading also ended 16 consecutive months of contraction in manufacturing activity.

The Federal Reserve hiked interest rates by 525 basis points since March 2022 after inflation hit a 40-year high. Higher interest rates weighed on the manufacturing sector, which accounts for 10.4% of the economy.

However, inflation has declined sharply over the past year and the Federal Reserve has left interest rates unchanged since July 2023. The central bank is now planning to cut interest rates at least thrice by the end of this year.

Lowering interest rates typically bodes well for the broader economy and the manufacturing sector. This is because reduced borrowing costs can stimulate economic activity by encouraging businesses to invest in capital projects and consumers to spend more.

Our Choices

Given this scenario, it would be ideal to invest in five stocks from the manufacturing sector — Caterpillar Inc. CAT, Hubbell Incorporated HUBB, Parker-Hannifin Corporation PH, Applied Industrial Technologies, Inc. AIT and A. O. Smith Corporation AOS — that we have detailed below. These stocks have a Zacks Rank #1 (Strong Buy) or 2 (Buy) and assure good returns. You can see the complete list of today’s Zacks #1 Rank stocks here.

Caterpillar Inc. is the largest global construction and mining equipment manufacturer. Given that it serves a gamut of sectors — infrastructure, construction, mining, oil & gas and transportation, CAT is considered a bellwether of the global economy. Caterpillar has more than 4 million products with an extensive dealer network of 165 dealers spanning 191 countries.

Caterpillar’s expected earnings growth for the current year is 0.6%. The Zacks Consensus Estimate for current-year earnings has improved 3.5% over the past 60 days. CAT currently carries a Zacks Rank #2.

Hubbell Incorporated is engaged in the design, manufacture and sale of electrical and electronic products to commercial, industrial, utility and telecommunications markets. HUBB’s products include plugs, receptacles, connectors, lighting fixtures, high-voltage test and measurement equipment, and voice and data signal processing components.

Hubbell Incorporated’s expected earnings growth for the current year is 7.2%. The Zacks Consensus Estimate for current-year earnings has improved 0.6% over the past 60 days. HUBB currently carries a Zacks Rank #2.

Parker-Hannifin Corporation is a global diversified manufacturer of motion & control technologies and systems. PH provides precision-engineered solutions for a wide variety of mobile, industrial and aerospace markets.

Parker-Hannifin Corporation’s expected earnings growth for the current year is 12.5%. The Zacks Consensus Estimate for current-year earnings has improved 1.6% over the past 60 days. PH presently has a Zacks Rank #2.

Applied Industrial Technologies, Inc. is a distributor of value-added industrial products — including engineered fluid power components, bearings, specialty flow control solutions, power transmission products and miscellaneous industrial supplies. AIT’s products are mainly sold to original equipment manufacturers, and maintenance, repair, and operations customers in Australia, North America, Singapore and New Zealand.

Applied Industrial Technologies’ expected earnings growth for the current year is 8.5%. The Zacks Consensus Estimate for current-year earnings has improved 2.5% over the past 60 days. AIT currently has a Zacks Rank #2.

A. O. Smith Corporation is one of the leading manufacturers of commercial and residential water heating equipment and water treatment products in the world. AOS specializes in offering innovative and energy-efficient solutions and products, which are developed and sold on a global platform.

A. O. Smith’s expected earnings growth for the current year is 6.8%. The Zacks Consensus Estimate for current-year earnings has improved 0.5% over the last 60 days. AOS currently carries a Zacks Rank #2.

5 Stocks Set to Double

Each was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2024. While not all picks can be winners, previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

Today, See These 5 Potential Home Runs >>

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Caterpillar Inc. (CAT) : Free Stock Analysis Report

Parker-Hannifin Corporation (PH) : Free Stock Analysis Report

A. O. Smith Corporation (AOS) : Free Stock Analysis Report

Applied Industrial Technologies, Inc. (AIT) : Free Stock Analysis Report

Hubbell Inc (HUBB) : 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.

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