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4 Stocks to Buy on a Solid Rebound in Durable Goods Orders

Orders for U.S.-made factory goods bounced back in December, with inflation starting to show signs of easing. Rising prices have compelled people to cut down on spending on goods but orders for factory goods are rebounding as prices continue to cool. The jump in December orders comes after a decline in November.

The manufacturing sector has been suffering lately, owing to inflationary pressures but higher orders for transportation equipment have been boosting orders for durable goods. Given this scenario, stocks like IDEX Corporation IEX, ESCO Technologies Inc. ESE, Deere & Company DE and AGCO Corporation AGCO are expected to gain in the near term.

Durable Goods Orders Soar

The Commerce Department on Jan 26 said that orders for durable goods made in U.S. factories jumped a whopping 5.6% to reach $286.9 billion in December, exceeding economists’ expectations of a rise of 2.5%.

December’s jump follows a 1.7% decline in orders for durable goods in November. Excluding defense, new orders for durable goods jumped 6.3% in December.

The solid jump in December was driven by a more than twofold increase in orders for civilian aircraft, which rose 115.5% month over month to $28.88 billion.

Orders for transportation equipment increased $15.5 billion or 16.7% to $108.1 billion. Transportation equipment orders have now increased in four of the previous five months.

The manufacturing sector has been struggling of late as consumers have been spending cautiously owing to rising prices. However, despite the challenges, the sector has been attempting to hold its ground. Strong demand across the board is boosting orders, which ultimately is driving sales.

Shipment of manufactured durable goods increased 0.5% or $1.4 billion in December to $277.7 billion, after a 0.4% rise in November. Shipment of manufactured goods has now increased in 19 of the past 20 months, which once again shows the underlying strength in the economy.

Non-defense new orders for capital goods climbed $100.6 billion or 19.2% to $100.6 billion in December. Shipments rose $0.2 billion, or 0.2% to $85.2 billion.

The report comes as the latest data showed that inflation has finally started showing signs of easing. The U.S. Bureau of Economic Analysis said on Jan 27 that the Personal Consumption Expenditures (PCE) Price Index, declined to 5% year over year in December from 5.5% in November. Core PCE, the Fed’s preferred gauge of inflation, fell to 4.4% in December from 4.7% in the same period.

Also, U.S. GDP grew 2.9% in the fourth quarter. During the height of the pandemic, people spent more on goods and less on services, but people have once again started spending more on services as things are again back to normal. Orders for durable goods are increasing since there is still a considerable quantity of product demand.

Also, the slight decline in inflation over the past couple of months has been helping the manufacturing sector rebound as people are again spending more freely.

Our Choices

Given this scenario, it will be prudent to invest in stocks with a favorable Zacks Rank that are poised to gain from solid durable goods orders. We narrowed down our search to four such stocks. Each of these stocks 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.

IDEX Corporation is an applied solutions company that specializes in a diverse range of applications such as fluid and metering technologies; health and science technologies; and fire, safety and other products built to customer specifications. IEX sells its products to original equipment manufacturers, as well as to direct end-use customers across the globe.

IDEX Corporation’s expected earnings growth for the current year is 28.4%. The Zacks Consensus Estimate for current-year earnings has improved 0.6% over the past 90 days. IEX currently has a Zacks Rank #2.

ESCO Technologies Inc., a subsidiary of ESCO Technologies Inc., enables the vision of what energy information can accomplish for 21st Century Utility by transforming both energy company and customer views of energy. ESE operates through the Utility Solutions Group, RF Shielding and Test, and Aerospace & Defense sectors.

ESCO Technologies’ expected earnings growth for the current year is 9.4%. The Zacks Consensus Estimate for current-year earnings has improved 7% over the past 60 days. ESE currently sports a Zacks Rank #1.

Deere & Company is the world’s largest producer of agricultural equipment, manufacturing agricultural machinery since 1837 under the iconic John Deere brand with its signature green and yellow color scheme. DE has an advantage in most farm machinery categories as its machines come with advanced features and are better constructed than its competitors.

Deere & Company’s expected earnings growth for the current year is 20.3%. The Zacks Consensus Estimate for current-year earnings has improved 2.7% over the past 60 days. DE currently carries a Zacks Rank #2.

AGCO Corporation is a leading manufacturer and distributor of agricultural equipment and related replacement parts. AGCO offers a full product line of farm equipment through a wide network of dealers and distributors across 140 countries.

AGCO Corporation’s expected earnings growth for the current year is 14.3%. The Zacks Consensus Estimate for current-year earnings has improved 0.1% over the past 60 days. AGCO currently carries a Zacks Rank #2.

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