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U.S. Durable Goods Orders Rebound in October: 5 Top Picks

Orders to U.S. factories for long-lasting manufactured goods surged in October, reversing the sharp decline witnessed in the previous months. Moreover, core durable goods order –- a key metric to track business investment plan –- also soared. The turnaround happened despite contraction of investment in the manufacturing sector primarily owing to the lingering trade dispute with China and fears of a global economic slowdown.

The U.S. economy has been reeling under trade-related jitters, especially with its largest trading partner China, for nearly two years. The lingering tariff war has resulted in a slow pace of U.S. GDP growth. The manufacturing segment bore the brunt of the trade war owing to higher input costs and lower export demand.

Durable Goods Orders Rebound in October

On Nov 27, the Department of Commerce reported that new orders for manufactured durable goods increased $1.5 billion or 0.6% to $248.7 billion in October from September. In contrast, the consensus estimate was for a contraction of 0.8%. October’s turnaround is significant in view of a decline of 1.4% (revised estimate) in durable goods orders in September. Notably, a month-long disturbance in production in a major automobile company hindered the durable orders.

The significant increase in October’s orders is primarily due to an 18% jump in military aircraft orders. Moreover, orders rose almost 11% for commercial aircraft. In addition, new orders for fabricated metal products, heavy machinery and computers and related products grew 1.8%, 1.3% and 2.4%, respectively.

Core Durable Goods Orders Surge in October

More important information from the report is that the core durable goods order (which excludes defense aircraft) jumped 1.2% in October compared with a sharp decline of 1.4% in September.

The core durable goods data for October indicate that business spending is likely to continue although the pace may decline considerably. Therefore, stabilization of business investment in October will act as a relief to the manufacturing sector. Additionally, new orders for core capital goods is a leading metric to calculate equipment spending in the U.S. government’s GDP measurement.

Industry researchers are highly concerned about future capital spending by the U.S. manufacturing sector due to the prolonged tariff battle between the United States and China, and an impending global economic slowdown. Notably, the manufacturing sector constituted nearly 12% of U.S. GDP.

Our Top Picks   

Against this backdrop, it will be prudent to invest in stocks with a favorable Zacks Rank that are poised to gain from the solid durable goods orders. We narrowed down our search to five such stocks. Each of these stocks carry either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The chart below shows price performance of our five picks year to date.

 

Northwest Pipe Co. NWPX manufactures engineered welded steel pipe water systems in North America. It operates through two segments: Water Transmission business and Tubular Products business. The Zacks Rank #1 company has an expected earnings growth rate of 15.8% for the current year. The Zacks Consensus Estimate for the current year has improved by 46.7% over the last 30 days. The stock has surged 48.2% year to date.

Tennant Co. TNC is a world leader in designing, manufacturing and marketing solutions that empower customers to achieve quality cleaning performance. The Zacks Rank #1 company has an expected earnings growth rate of 29.8% for the current year. The Zacks Consensus Estimate for the current year has improved by 5.2% over the last 30 days. The stock has climbed 43.7% year to date.

CIRCOR International Inc. CIR designs, manufactures, and markets engineered products and sub-systems worldwide. It operates through three segments: Energy, Aerospace and Defense, and Industrial. The Zacks Rank #2 company has an expected earnings growth rate of 6.2% for the current year. The Zacks Consensus Estimate for the current year has improved by 5.2% over the last 30 days. The stock has jumped 108.5% year to date.

Mercury Systems Inc. MRCY is a leading provider of sensor and safety critical mission processing subsystems in the United States, Europe, and the Asia Pacific. Its products and solutions are deployed in approximately 300 programs with 25 defense prime contractors and commercial aviation customers. The Zacks Rank #2 company has an expected earnings growth rate of 13.6% for the current year. The Zacks Consensus Estimate for the current year has improved by 2% over the last 30 days. The stock has soared 55.7% year to date.

Identiv Inc. INVE is a global security technology company. It provides trust solutions in the connected world, including premises, information and everyday items. The Zacks Rank #2 company has an expected earnings growth rate of 115% for the current year. The Zacks Consensus Estimate for the current year has improved by 300% over the last 30 days. The stock has surged 47.5% year to date.

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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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