The U.S. economy has been reeling under trade-related jitters, especially with its largest trading partner China, for the last 15 months. The lingering tariff war has resulted in a slow pace of U.S. GDP growth. Besides technology, the industrial sector has also borne the brunt of trade war owing to higher input costs and lower export demand. Both are the direct results of a prolonging trade conflict.
Industrial Production Declines in September
On Oct 17, the Department of Commerce reported that U.S. industrial production including manufacturing, mining and utilities, declined 0.4% in September, which is more than the consensus estimate of a drop of 0.2%. U.S. factory output shrank 0.5% last month. Notably, the revised estimate for the month of August rose to growth of 0.8% from 0.6% reported earlier.
On Oct 15, the Federal Reserve reported that U.S. manufacturing activities plunged 0.9% year over year mainly owing to trade war with China. Moreover, capacity utilization in the industrial sector fell to 77.5% in September from 77.9% in August. The figure was also below the consensus estimate of 77.7%.
Notably, on Oct 1, the Institute of Supply Management reported that U.S. manufacturing PMI for the month of September came in at 47.8 compared with the consensus estimate of 50.2. Any reading below 50 is recognized at a contraction in the manufacturing sector. The ISM manufacturing index for August was 49.1%. Two consecutive months of contraction is generally recognized as a recession in manufacturing, which constitutes around 12% of U.S. GDP.
Uncertainty on Trade War Front
Trade-related conflict with China continues despite President Trump’s assurance about substantial progress of a partial deal. On Oct 11, President Trump said that the largest two trading countries of the world have reached an agreement for the first part of the broader trade deal. However, on Oct 14, Bloomberg reported that China needs more discussions with the United States before signing a partial trade deal.
The Wall Street Journal reported that China wants U.S. tariffs to be rolled back before increasing imports of U.S. agricultural products. Further, diplomatic relations may aggravate between the two countries owing to political unrest in Hong Kong.
5 Industrial Stocks Flying High
Despite several headwinds, industrial stocks have performed quite strongly so far this year. The Industrial Select Sector SPDR (XLI), one of the 11 broad sectors of the S&P 500 Index, has rallied 20.5% year to date, higher than the benchmark index’s gain of 19.6%.
In line with this impressive trend, we have narrowed down our search to five industrial stocks that skyrocketed in 2019 and still have upside left. 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.
Tetra Tech Inc. TTEK is a leading global provider of consulting, construction management, engineering, program management and technical services. It operates through Government Services Group and Commercial/International Services Group segments.
The company has an expected earnings growth rate of 18.6% for the current year. The Zacks Consensus Estimate for the current year has improved by 1% over the last 30 days. The stock has jumped 67.7% year to date.
Cintas Corp. CTAS provides corporate identity uniforms and related business services primarily in North America, Latin America, Europe, and Asia. It operates through Uniform Rental and Facility Services and First Aid and Safety Services segments.
The company has an expected earnings growth rate of 12.8% for the current year. The Zacks Consensus Estimate for the current year has improved by 1.8% over the last 30 days. The stock has jumped 59.7% year to date.
Casella Waste Systems Inc. CWST is a regional, integrated solid waste services company that provides collection, transfer, disposal and recycling services, generates steam and manufactures finished products utilizing recyclable materials primarily throughout the eastern portion of the United States and parts of Canada.
The company has an expected earnings growth rate of 36.1% for the current year. The Zacks Consensus Estimate for the current year has improved by 1% over the last 30 days. The stock has soared 51% year to date.
MKS Instruments Inc. MKSI is a global provider of instruments, subsystems and process control solutions that measure, monitor, deliver, analyze, power and control critical parameters of advanced manufacturing processes.
The company has an expected earnings growth rate of 48.2% for the next year. The Zacks Consensus Estimate for the current year has improved by 0.2% over the last 30 days. The stock has soared 46.5% year to date.
ESCO Technologies Inc. ESE produces and supplies engineered products and systems for utility, industrial, aerospace, and commercial users worldwide. It operates in four segments: Filtration/Fluid Flow (Filtration), RF Shielding and Test (Test), Utility Solutions Group (USG), and Technical Packaging.
The company has an expected earnings growth rate of 11.9% for the next year. The Zacks Consensus Estimate for the current year has improved by 0.7% over the last 30 days. The stock has surged 24.3% year to date.
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