5 Stocks to Add to Your Portfolio as Factory Goods Orders Rise
The U.S. manufacturing sector has been battered and bruised as inflation remains sky-high. However, manufacturing activity has shown signs of recovery lately, with factory orders and orders for durable goods increasing.
This has also led the ISM Manufacturing PMI to finally make an improvement, although it is yet to overcome all the challenges. Given this situation, investing in stocks like Caterpillar Inc., CAT A. O. Smith Corporation AOS, EnerSys ENS, Xerox Holdings Corporation XRX and Applied Industrial Technologies, Inc. AIT should be prudent.
Factory Goods Orders Increase
New orders for U.S.-made factory goods rose $6.7 billion or 1.2% month over month to $586.1 billion in August, which was higher than the consensus estimate of a rise of 0.2%, the Census Bureau reported on Oct 4. The solid jump in factory orders follows a 2.1% decline in July.
Year over year, factory orders increased 0.5% in August. Excluding transportation, factory orders rose 1.4% in August after rising 0.9% in the prior month.
Shipments increased $7.7 billion or 1.3% in August to $586 billion, showing growth for the fourth straight month. New orders for manufactured durable goods rose $0.4 billion or 0.1% in August, which has now increased in five months out of the last six.
Factory orders have now increased for five out of the last six months indicating that the manufacturing sector is putting up a solid fight amid ongoing inflationary pressures.
However, inflation has sharply declined over the past 12 months after peaking to 9.1% in June 2022 thanks to the Fed’s monetary tightening campaign that saw the central bank increasing interest rates by 525 points since March 2022.
The jump in August factory orders comes as durable goods orders, which include goods lasting more than three years, jumped 4.2% year over year in August.
Also, the Institute for Supply Management’s Manufacturing PMI came up with a reading of 49% in September, up 1.4% from August’s reading of 47.6, the Commerce Department reported.
While a reading below 50 indicates contraction, the manufacturing sector is showing signs of recovery, given that three significant subindexes have recently shown expansion. The Production PMI came up with a reading of 52.5%, up 2.5% month over month in September.
The Employment Index came up with a reading of 51.2%, increasing 2.7% from 48.5% in August.
Slowing inflation is once again helping the manufacturing sector. The Fed has also said that it will go for only one more interest hike by a quarter percentage point this year before it starts cutting rates in 2024. Lower interest rates should help the sector further.
Our Choices
Given this scenario, it will be prudent to invest in these five stocks with a favorable Zacks Rank that are poised to gain from expansion in manufacturing activity. 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.
Caterpillar Inc. is the largest global construction and mining equipment manufacturer. Given that it serves a gamut of sectors — infrastructure, construction, mining, oil & gas and transportation, CAT is considered a bellwether of the global economy. Caterpillar has more than 4 million products with an extensive dealer network of 165 dealers spanning 191 countries.
Caterpillar’s expected earnings growth for the current year is 43.6%. The Zacks Consensus Estimate for current-year earnings has improved 2.2% over the past 60 days. CAT currently carries a Zacks Rank #2.
A. O. Smith Corporation is one of the leading manufacturers of commercial and residential water heating equipment, and water treatment products of the world. AOS specializes in offering innovative, and energy-efficient solutions and products, which are developed and sold on a global platform.
A. O. Smith’s expected earnings growth for the current year is 14.3%. The Zacks Consensus Estimate for current-year earnings has improved 0.3% over the last 60 days. AOS presently carries a Zacks Rank #2.
EnerSys engages in manufacturing, marketing and distribution of various industrial batteries. Additionally, ENS develops battery chargers and accessories, power equipment and outdoor cabinet enclosures. This apart, EnerSys provides support services for clients.
EnerSys’ expected earnings growth for the current year is 45.7%. The Zacks Consensus Estimate for current-year earnings has improved 0.9% over the last 60 days. ENS presently has a Zacks Rank #2.
Xerox Holdings Corporation is a leader in the contractual print and document services market. XRX has developed one of the industry’s strongest portfolios of managed print service solutions and services. Xerox’s strategy is to use data-centric technologies to help customers in their digital transformation, taking advantage of the changing market conditions.
Xerox’s expected earnings growth for the current year is 51.8%. The Zacks Consensus Estimate for current-year earnings has improved 3% over the past 60 days. XRX presently has a Zacks Rank #2.
Applied Industrial Technologies, Inc. is a distributor of value-added industrial products — including engineered fluid power components, bearings, specialty flow control solutions, power transmission products and miscellaneous industrial supplies. AIT’s products are mainly sold to original equipment manufacturers (OEM) and maintenance, repair and operations customers in Australia, North America, Singapore and New Zealand.
Applied Industrial Technologies’ expected earnings growth for the current year is 3.5%. The Zacks Consensus Estimate for current-year earnings has improved 1.6% over the past 60 days. AIT currently has a Zacks Rank #2.
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Caterpillar Inc. (CAT) : Free Stock Analysis Report
Xerox Holdings Corporation (XRX) : Free Stock Analysis Report
A. O. Smith Corporation (AOS) : Free Stock Analysis Report
Applied Industrial Technologies, Inc. (AIT) : Free Stock Analysis Report
Enersys (ENS) : Free Stock Analysis Report
