Industrial production rose 0.4% in May reversing the decline of 0.4% in April. Manufacturing output rebounded with growth of 0.2% after having decreased about 0.4% per month, on average, in the first four months of the year.
These figures allayed concerns triggered by the Institute for Supply Management’s latest report that the pace of growth in the U.S manufacturing sector has been hindered by escalating trade war concerns between the United States and China. Per the Institute for Supply Management, Purchasing Managers’ Index (PMI) for May came down to 52.1% from 52.8% registered in April. Despite the dip in May, the PMI averaged 57.7% over the last 12 months. Further, it has remained above 50% (which indicates expansion) for 33 straight quarters. The New Orders Index registered 52.7% in May, marking growth for 41 straight months. Production Index was 51.3% in the month, improving for 33 straight months.
Factors Likely to Aid Growth
Continuous advancements in technologies applied in agriculture and mining industries sustain demand strong for farming and mining machinery. Despite weakness in the agricultural sector, replacement demand will continue to drive order activity for agricultural equipment due to the pressing need to replace older fleet and capitalize on the new technology available. Further, the recently announced $16 billion aid program for American farmers impacted by the trade war is likely to bolster agricultural equipment sales. Long-term demand for agricultural equipment will be buoyed by increased global demand for food. Growth in demand for packaged foods and beverages, especially in emerging countries, are significantly increasing the utilization of highly sophisticated food processing and packaging equipment.
Improvement in residential and non-residential construction as well as infrastructure demand will fuel the sector’s performance. Mining companies are also resuming their capital spending on the back of improvement in commodity prices. Further, the tax reform has been acting as a catalyst.
Solid Sector Positioning & Projections
The Zacks Industrial Products sector has rallied 15.8% year to date, while the S&P 500 witnessed growth of 15.2%.
Earnings for the Industrial Products Sector, one of the 16 broad Zacks sectors, rose 1.2% in the first quarter of 2019 amid input cost inflation. Per the latest Earnings Trends report, the sector is expected deliver earnings growth of 0.4% in in the second quarter of 2019 — one of the seven Zacks Sectors with positive growth. The sectors are expected to deliver earnings growth of 5.6% and 12.7% in the third quarter and the fourth quarter, respectively.
Thus we suggest you to stay invested in the sector to reap the benefits of healthy prospects ahead. To zero in on stocks that are winning currently and have the potential to gain further, we have opted for one of the relatively new investment techniques, by betting on stocks near a 52-week high. The 52-week investment strategy relies on the new investment mantra, “buy high and sell higher.”
Investing in stocks near their 52-week high is similar to following the momentum strategy, which is based on the premise that once a trend is established, it is likely to continue. The surge can be attributed to a broad set of factors including impressive sales, robust profitability and bullish earnings prospects as well as major developments. Picking such stocks might help investors earn higher returns in the short term. However, this is only a speculative strategy and not meant for the faint hearted.
Stocks That Fit the Bill
AptarGroup, Inc. ATR: This Crystal Lake, IL-based company has a Zacks Rank #2 (Buy) and Momentum Score of B. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The company has a positive average earnings surprise of 8.27% over the last four quarters. The Zacks Consensus Estimate for fiscal 2019 earnings suggests growth of 8.75%. The estimate for fiscal 2019 moved up 3% over the past 90 days. The company has an estimated long-term earnings growth of 10.33%. The stock has gained 26.9% so far this year, outperforming the industry’s growth 18.7%. It is trading near its 52-week high of $124.45.
Casella Waste Systems, Inc. CWST This Rutland, VT-based company has a Zacks Rank #2 and Momentum Score of A. The Zacks Consensus Estimate for fiscal 2019 earnings projects growth of 32.79%. The estimate for fiscal 2019 has moved up 1% in the past 90 days. The stock has gained 43.5% so far this year, outperforming the industry’s rally of 25.5%. It is trading near its 52-week high of $41.50.
John Bean Technologies Corporation JBT: This Chicago IL-based company has a Zacks Rank #2 and a Momentum Score of A. The company has delivered positive earnings surprises in three of the trailing four quarters, with an average beat of 25.14%. Sentiments are in favor of the company, as evident from the positive earnings estimate revision of 6% for 2019 in the last 90 days. The company has a long term estimated earnings growth of 11.16%. The stock has logged a year-to-date gain of 60.8%, compared with the industry’s growth of 19.4%. The stock is trading near its 52-week high of $123.90.
Roper Technologies Inc. ROP: This Sarasota FL-based company sports a Zacks Rank #1 and a Momentum Score of A. The company has a long-term estimated earnings growth of 11%. The company has an average beat of 8.43% in the last four quarters. The Zacks Consensus Estimate for 2019 earnings of the company has moved up 5% in the last 90 days. The stock has gained 36.8% so far this year, outperforming the industry’s rally of 24.8%. The stock is near its 52-week high of $370.31.
These stocks have growth potential as evident from their estimate revisions and price appreciation. We anticipate these stocks to yield strong returns in the short term and scale higher by this year end.
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