U.S. Manufacturing Sector Shows Signs of Recovery: 5 Picks
The U.S. manufacturing sector that has witnessed resurgence under the Trump administration since 2017, shrugging off its lengthy spell of weak productivity and sluggish growth, is facing a downturn of late due to a lingering tariff war with China. Higher tariff on low-cost Chinese goods, which are used as intermediary products, raised the input cost of high-end U.S. products.
Moreover, the year-long U.S.-China trade tussle has resulted in a global economic slowdown, which is taking a toll on U.S. manufacturing exports. Meanwhile, a higher cost of U.S. dollar hasr worsened the situation. However, several economic data have revealed that U.S. manufacturing is slowly recovering from last month.
Positive Manufacturing Data
On Sep 23, IHS Markit reported that the U.S. manufacturing PMI came in at 51 in September from 50.3 in August. September’s reading was the highest since April. Notably, any reading above 50 means expansion of U.S. manufacturing activities. Moreover, services PMI also increased to 50.9 in September from 50.7 in August.
Despite a volatile 2018, the manufacturing sector has expanded and generated a good number of jobs. This trend continued in the first quarter of 2019. However, from April, the situation took a down turn.
On Sep 17, the Federal Reserve reported that industrial production in August rebounded with a rise of 0.6%, reversing a 0.1% dip in July and beating the consensus estimate of growth of 0.2%. Importantly, manufacturing production, which accounted for 12% of the U.S. economy, grew 0.6% in August after a decline of 0.4% in July.
Within manufacturing, machinery output jumped 1.6% after tumbling 1.7% in the previous month. Additionally, mining activities rose 1.4% in August reversing the 1.5% decline in July. Moreover, capacity utilization in manufacturing industries increased to 75.7% in August from 75.4% in July. Overall capacity utilization for the industrial sector grew to 77.9% from 77.5% in July.
Importantly, both IHS Markit manufacturing PMI and Federal Reserve’s industrial production data for August were major relief to economists after the Institute of Supply Management reported that U.S. manufacturing contracted in August for the first time in three years.
A Dovish Fed
Since the beginning of 2019, the Fed has adopted a dovish stance, which helped to defuse trade-related volatilities to a great extent. After a long period of 11 years, Fed has reduced the benchmark lending rate by 50 basis points in two tranches so far this year. Lower interest rate means low cost of capital. Consequently, U.S. manufacturers will be induced to invest more, which will generate higher growth.
Several market participants still consider a third rate cut of same magnitude by the Fed within this year. Although Fed Chair Jerome Powell refrained to give any clear indication of further rate cut, he did stick to his earlier stance to do whatever is needed to sustain U.S. economic expansion.
Our Top Picks
At this stage, we have narrowed down our search to five manufacturing stocks that gained in the past month and still have strong upside. Each of our picks carries 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 in the past month.
Graham Corp. GHM designs, manufactures and supplies vacuum and heat transfer equipment for the chemical, defense, petrochemical, petroleum refining, electric power generation and other industries worldwide.
The company has expected earnings growth of 54.9% for the current year. The Zacks Consensus Estimate for the current year has improved by 46.3% over the last 60 days. This Zacks Rank #2 stock has surged 7.9% in the past month.
AGCO Corp. AGCO manufactures and distributes agricultural equipment like high horsepower tractors, utility tractors and compact tractors and related replacement parts worldwide. It offers hay tools and forage equipment also.
The company has expected earnings growth of 30.6% for the current year. The Zacks Consensus Estimate for the current year has improved by 3.9% over the last 60 days. This Zacks Rank #2 stock has jumped 14.3% in the past month.
John Bean Technologies Corp. JBT provides technology solutions to food and beverage industry and equipment and services to air transportation industries. The company operates through JBT FoodTech and JBT AeroTech segments.
The company has expected earnings growth of 13% for the current year. The Zacks Consensus Estimate for the current year has improved by 6.4% over the last 60 days. This Zacks Rank #2 stock has gained 2.8% in the past month.
Zebra Technologies Corp. ZBRA designs, manufactures, and sells a range of automatic identification and data capture products worldwide. It operates through two segments, Asset Intelligence & Tracking and Enterprise Visibility & Mobility.
The company has expected earnings growth of 16.7% for the current year. The Zacks Consensus Estimate for the current year has improved by 2.1% over the last 60 days. This Zacks Rank #1 stock has surged 3.5% in the past month.
Crawford United Corp. CRAWA develops and manufactures products for diverse markets. It primarily serves healthcare, education, automotive, aerospace, trucking and petrochemical industries.
The company has expected earnings growth of 36.2% for the current year. The Zacks Consensus Estimate for the current year has improved by 7.8% over the last 60 days. This Zacks Rank #1 stock has surged 3.4% in the past month.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2018, while the S&P 500 gained +15.8%, five of our screens returned +38.0%, +61.3%, +61.6%, +68.1%, and +98.3%.
This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year.
See their latest picks free >>
Click to get this free report
AGCO Corporation (AGCO): Free Stock Analysis Report
Graham Corporation (GHM): Free Stock Analysis Report
John Bean Technologies Corporation (JBT): Free Stock Analysis Report
Zebra Technologies Corporation (ZBRA): Free Stock Analysis Report
Hickok Inc. (CRAWA): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research