The industrial products sector (one of the 16 broad Zacks sectors) is currently enjoying a Zacks Sector Rank of 2, just a pace behind the Auto, Tires and Trucks sector. This can be attributed to the fact that the majority of the 215 industries within this sector has performed well lately and are poised to take the momentum ahead in the coming quarters.
Some industries in the industrial products sector that are currently well placed in the top 10% of total 265 Zacks categorized industries include Manufacturing - Material Handling and Office Supplies industries which are in the top 2%. Manufacturing - Farm Equipment and Manufacturing - Thermal Products industries are among the top 6% while Glass Products is among the top 7%.
In the past one year, the industrial products sector has clocked a gain of 28.9%, outperformed the S&P 500’s climb of 20.7%. The U.S. factory activity seems to have overcome its previous sluggishness driven by steady job creation, a stable dollar and strong overseas demand.
Economic indicators are indicating a healthy business environment in the industrial sector. For the first quarter of 2017, industrial production – a measure of output at factories, mines and utilities, rose at an annual rate of 1.5 %. The momentum continues in the second quarter with U.S. industrial production logging growth of 1.1% in April compared with March, marking its biggest gain since Feb 2014. Industrial production remained unchanged in May compared with April. A drop in manufacturing output was mitigated by increases in mining and utilities output to keep the index flat in May. Though manufacturing output declined 0.4% in May; it is well within the range of normal monthly volatility. Factory production has gone up 1.4 % in the last 12 months. Total industrial production in May was 2.2% above year-earlier level.
Government policies encouraging better trade relations, increase in infrastructural investments, job creation and high consumer-end demand will support growth. The Industrial Products sector put up a 28.5% growth in earnings in first-quarter 2017 and an 11.7% growth in earnings is projected in second-quarter 2017. The Industrial Products sector is one of the three sectors projected to log a double-digit growth in the second quarter. (Read more: Q2 Earnings Season Preview)
Thus, investing in the industrial space makes perfect sense at this point. However, the question arises – how to make that choice. To zero in on stocks that are winning currently and have the potential to gain further, we have opted one tried and tested technique – picking stocks near their 52-week highs.
Why These Stocks are Good Bets
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 is driven by a broad set of factors including impressive sales, robust profitability and bullish earnings prospects. Major developments may also send stocks soaring.
On the flipside, stocks that are trading near their 52-week highs carry the risk of falling fast as the market might consider them overvalued. But the positives seem to outweigh drawbacks.
Notably, momentum investors strongly believe in “the trend is your friend”, which means stocks that are growing will continue to grow. They make short-term choices among stocks that are scaling up and sell them at the first sign of a downtrend. The basic idea is that once a trend is recognized, it is likely to continue and the chances of a reversal are minimal.
Thus, 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
Given their strong earnings history, positive earnings revisions and great value metrics, we believe these five industrial stocks, all of which are near their 52-week highs, will continue their uptrend for now. The stocks carry a Zacks Rank #1 (Strong Buy) or 2 (Buy) and have a Momentum Style Score of “A” or “B”. You can see the complete list of today’s Zacks #1 Rank stocks here.
AGCO Corporation AGCO, manufacturer and distribution of farm equipment, machinery and replacement parts in the U.S. and Canada, boasts a Zacks Rank #1 and has a Momentum Style Score of “A”. The company has delivered positive earnings surprises in the last four quarters, with an average beat of 40.39%. The company has an expected long-term earnings per share growth rate of 13.06%. Sentiments are in favor of the company, as evident in the positive earnings estimate revisions of 11% for 2017 and 10% for 2018 in the last 60 days. The stock closed at $66.47 yesterday, logging a year-to-date gain of 15.4% so far this year and is near its 52-week high of $68.04.
AptarGroup, Inc. ATR provides a range of packaging, dispensing, and sealing solutions, primarily for the beauty, personal care, home care, prescription drug, consumer health care, injectable, and food and beverage markets. The stock carries a Zacks Rank #2 and has a Momentum Style Score of “A”. The company has delivered positive earnings surprises in the last four quarters, with an average beat of 1.78%. The long-term expected earnings growth rate for AptarGroup is 9.33%. The estimates for the company for fiscal 2017 and fiscal 2018 have moved north 5% and 5%, respectively in the last 60 days, reflecting the positive outlook of analysts. The stock has gained 18.5% so far this year and closed trading at $86.37 yesterday, near its 52-week high of $87.94.
Barnes Group Inc. B is an international manufacturer of precision metal parts and distributor of industrial supplies. The stock carries a Zacks Rank #2 and has a Momentum Style Score of “B”. The company has delivered positive earnings surprises in the last four quarters, with an average beat of 8.94%. Earnings estimates for fiscal 2017 and fiscal 2018 have both moved up 3% over the past 60 days. The long-term expected earnings growth rate for Barnes Group is 9%. Closing at $57.80 yesterday, the stock has clocked a gain of 22.5% so far this year and is near to its 52-week high of $58.54.
Deere & Company DE, producer of agricultural equipment and a leading manufacturer of construction, forestry, and commercial and consumer equipment flaunts a Zacks Rank #1 and Momentum Score of “A”. Deere has a long-term earnings growth rate of 9.17%. Deere outpaced the Zacks Consensus Estimate in the trailing four quarters, generating an encouraging positive average earnings surprise of 70.41%. The estimate for fiscal 2017 climbed 31% to $6.31 in the past 60 days and for fiscal 2018 also moved north 23% to $6.83. Closing at $122.00 yesterday, the stock has gained 19.1% so far this year and is near its 52-week high of $128.37.
Lakeland Industries, Inc. LAKE manufactures and sells a range of safety garments and accessories for the industrial and public protective clothing market in the U.S. and internationally. The stock sports a Zacks Rank #1 and has a Momentum Style Score of “A”. The company has delivered positive earnings surprises in the trailing four quarters, with an average beat of 49.26%. The long-term expected earnings growth rate for Lakeland is 10.0 %. Closing at $13.65 yesterday, the stock has gained 31.3% so far this year and is near its 52-week high of $13.70.
These stocks have managed to grab the spotlight with notable performances, supported by solid earnings and impressive growth projections. These factors make us more or less confident that investing in these stocks will yield strong returns in the short term.
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