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Earlier this year, the COVID-19 pandemic dealt a severe blow to the U.S Manufacturing sector, which had already been reeling under waning global demand and the long-standing U.S.-China trade tensions. The pandemic-induced supply-chain disruptions, factory closures due to government restrictions worldwide, bleak demand as well as volatility in the energy market have battered the sector.
However, the U.S manufacturing sector seems to be gaining momentum, of late, as evident from the pick-up in manufacturing activities over the past few months, spurred by steady resumption of business, factory operations and other economic activities. Moreover, uptick in construction demand and various government stimulus packages are bolstering the sector.
Manufacturing Rebounds for 4 Straight Months
Per the Institute for Supply Management, the U.S Manufacturing Purchasing Managers’ Index (PMI) logged 55.4% growth in September, which came a tad below 56% in August — the highest so far in 2020. Notably, a reading above 50 denotes expansion in activity and the September PMI reading marks expansion in the sector for four consecutive months after remaining below the 50 mark from March to May primarily due to the pandemic. Notably, in April, the PMI index had slipped to 41.5% — the lowest reading since April 2009. Hence, the sector is coming out of the crisis and this recovery holds optimism for overall economic growth, as the manufacturing sector accounts for 11% of the U.S. economy.
Of the 18 manufacturing industries, 14 reported growth in September. The New Orders Index registered 60.2% growth in September, down from August’s 67.6%. The Production Index dipped to 61% from August’s 63.3%. The Employment Index grew to 49.6% in September from 46.4% in August.
Moreover, the IHS Markit reported that the US Manufacturing PMI rose to 53.2 in September from August’s 19-month high level of 53.1. The September reading demonstrates the strongest expansion in factory activity since January 2019.
Other Growth Potential
The sector has been witnessing stellar domestic and export demand on the recovery of global economic activities. Furthermore, robust construction demand, government’s financial stimulus packages, rate cuts and investment in infrastructure plan will fortify the sector in the near term. Apart from this, companies which provide packaging solutions are benefiting from the e-commerce boom, as well as the solid demand for essential products amid the pandemic. Manufacturing companies are also focusing on supporting margins through cost-control actions as well as increased productivity.
Over the past year, the Industrial Products sector has gained 20.3%, outperforming the S&P 500’s growth of 17.6%.
4 Industrial Stocks to Watch Out For
We have picked four Industrial Products stocks with a Zacks Rank #2 (Buy) and a VGM Score of A or B. Our proprietary methodology comes in handy while zeroing in on these stocks. Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2, offer solid investment opportunities. You can see the complete list of today’s Zacks #1 Rank stocks here.
These stocks have positive earnings growth projections for the current year and also been witnessing positive earnings growth revisions, of late.
Fortune Brands Home Security, Inc. FBHS: This Deerfield, IL-based company is a provider of home and security products for residential home repair, remodeling, new construction, and security applications. The stock has a VGM Score of B. It has an expected earnings growth of 6.9% for 2020. The Zacks Consensus Estimate for its current-year earnings is pegged at $3.85, having been revised 1.3% upward over the past 60 days. The company has a trailing four-quarter earnings surprise of 19.4%, on average. Its shares have rallied 60.5% in the past year.
Sealed Air Corporation SEE: This Charlotte, NC-based company currently holds a VGM score B. The company is a global leader in food safety and security and product protection. Over the past 60 days, the Zacks Consensus Estimate for the ongoing year’s earnings moved 3.5% north to $2.92, indicating year-over-year growth of 3.5%. The company has a trailing four-quarter average earnings surprise of 17.8%. Shares of the company have gained 8.2% over the past year.
Lawson Products, Inc. LAWS: This Chicago, IL-based company sells and distributes specialty products to the industrial, commercial, institutional and government Maintenance, Repair and Operations (MRO) market. The stock carries a VGM score of B. The Zacks Consensus Estimate for the current-year earnings is pinned at $2.41, calling for a year-over-year increase of 3.4%. The estimate has moved up 2.1% in 60 days’ time. The company has a trailing four-quarter average earnings surprise of 5.2%. The stock has climbed 17.3% in the past year.
Silgan Holdings Inc. SLGN: Based in Stamford, CT, Silgan is a leading supplier of rigid packaging for consumer goods products. Its products are used in diverse end markets. The company currently has a VGM score of A. The Zacks Consensus Estimate for this year’s earnings is pegged at $2.85, suggesting a year-over-year jump of 31.9%. The same has been revised upward by 0.4% in 60 days’ time. The company has a trailing four-quarter average earnings surprise of 12.8%. Its shares have appreciated 30.5% over the past year.
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