Fresh milestones in Friday’s Labor Department jobs’ report hinted at a bustling American economy. The S&P 500 index rose more than 1% in the weekend trading session, as the news of 223,000 job creations in the United States mirrored healthy gains across a wide range of industries, from transportation and manufacturing, to retailing and healthcare.
Among all, the manufacturing sector calls for much needed attention. An upturn in production and new order numbers in May’s Institute of Supply Management (ISM) report reveals that the sector is currently gathering steam and will not cease hiring in the upcoming days.
Against this opportune backdrop, investors can bet on selective manufacturing stocks to fetch alluring returns.
Joblessness Hits 18-Year Low, Manufacturers on Hiring Spree
Defying fears of overseas trade war, U.S. businesses have made it clear that hiring will not be ceased. The labor market is tightening and has noted the greatest streak of job growth this May. The joblessness rate dipped to 3.8%, the lowest level since the dot-com roar of early 2000. U.S. unemployment rate can fall as low as 3% by 2019-end — per Chief U.S. Barclays Economist Michael Gapen. Also, a 2.7% year-over-year upswing in May’s average hourly earnings wiped out fears of wage stagnation.
Exclusively, the manufacturing sector added around 18,000 jobs in the United States in May, counting a rise of 6,000 employees in machinery. So far this year, the sector is booming with a recruitment rate of 259,000. The latest ISM data revealed that the Employment Index reached 56.3% in May, reflecting an upswing for the 20th consecutive month. The sector added 222,000 new jobs last year, recommencing a recovery that had paused in 2016 and 2015.
Also, manufacturers are paying better than other jobs. Average weekly earnings for manufacturing employees came in at $1,097.52 last month, more than $928.74 for the private sector taken together.
U.S. Manufacturing Perks Up in May
May’s ISM manufacturing index jumped to 58.7% from 57.3% in the prior month, as manufacturing activity accelerated in Trump land despite sustained uncertainty over the White House trade policy.
In this domain, 16 out of 18 industries had witnessed expansion last month, with the production index and new-orders index climbing 4.3 points and 2.5 points to 61.5% and 63.7%, respectively.
In addition to this, May’s Philly Fed manufacturing index surged to 34.4, above the prior month’s reading of 23.2. Also, the new orders index climbed 22 points to 40.6, marking its highest level since March 1973. Last month’s Empire State manufacturing index reached 20.1, higher than 15.8 noted in the preceding month.
What’s Behind the Rally?
A higher than 50 reading of the May’s Purchasing Managers Index undoubtedly verified that the scale of economic activities is leveling out in the U.S. manufacturing sector. Corporate spending across manufacturing industries is shoring up at a healthy pace on the back of the December enacted tax overhaul, increased government spending and rising oil prices.
However, the absolute benefit of lower corporate taxes has not yet materialized. Going forward, tax cuts will likely expedite investments in factories, new equipment and other capital goods.
We also certainly believe that additional tax cuts prior to November will give a further push to manufacturing investment.
The U.S. economy is firmly placed at present and economic data is mostly favorable. The manufacturing sector (accounting 12% of the U.S. GDP) will likely continue to rally on the back of sturdier economic activity.
In sync with this, apportioning your hard-earned money in manufacturing stocks with a high growth potential will be a wise decision. We have handpicked five top-ranked manufacturing picks that will likely add a sparkle to your portfolio.
These picks have a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a VGM Score of A or B.
Caterpillar Inc. CAT manufactures and markets mining and construction equipment, industrial gas turbines, natural gas and diesel engines for the worldwide energy, transportation, resource, and construction industries.
The Zacks Consensus Estimate for earnings has moved up nearly 2% to $10.72 per share for 2018, in the last 30 days. Notably, the projected year-over-year earnings growth rate for this Illinois-based company is currently pegged at 55.8% for 2018. Caterpillar’s shares have gained 2.5% in the past month. The stock sports a Zacks Rank #1 and has a VGM Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
Regal Beloit Corporation RBC manufactures, designs and sells electrical motion controls, electric motors and power transmission products globally.
The stock carries a Zacks Rank #1 and a VGM Score of B. The Zacks Consensus Estimate for earnings has moved up 5.6% to $5.88 per share for 2018, in the last 30 days. The projected year-over-year earnings growth rate for this Wisconsin-based company is currently pegged at 20.7% for 2018. Regal Beloit’s shares have gained 8.5% in the past month.
Zebra Technologies Corporation ZBRA manufactures, designs, and sells different types of data capture and automatic identification products.
The stock sports a Zacks Rank #1 and has a VGM Score of B. The Zacks Consensus Estimate for earnings has moved up nearly 5.1% to $9.77 per share for 2018, in the last 30 days. Notably, the projected year-over-year earnings growth rate for this Illinois-based company is currently pegged at 38.6% for 2018. Zebra Technologies’ shares have gained 10.9% in the past month.
Kaman Corporation KAMN operates its services in the global distribution and aerospace markets. The company produces products like bearings, fluid power components and different aircraft components.
The stock carries a Zacks Rank #2 and flaunts a VGM Score of A. The Zacks Consensus Estimate for earnings has moved up nearly 1% to $3.13 per share for 2018, in the last 30 days. For the current year, the projected year-over-year earnings growth rate for this Connecticut-based company is pegged at 40.4%. Kaman’s shares have gained 15.2% in the past month.
EnerSys ENS produces, sells and distributes industrial batteries globally.
The stock has a Zacks Rank #2 and VGM Score of B. The Zacks Consensus Estimate for earnings has moved up nearly 1.1% to $5.34 per share for fiscal 2019 (ending March 2019), in the last 30 days. The projected year-over-year earnings growth rate for this Pennsylvania-based company is currently pegged at 14.8% for fiscal 2019. EnerSys’ shares have gained 8.4% in the past month.
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