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5 Stocks to Buy as Industrial Production Continues to Expand

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The U.S. economy is recovering at a faster pace than expected and the increase in industrial output is a proof of that. Industrial production increased at a faster pace than what was expected in July, with factories scurrying to reach the optimum level of production.

Also, manufacturing output rose sharply in July aided by a jump in the motor vehicle output. Industrial production has been on the rise for the past few months and the momentum is likely to continue as the economy reopens further.

Industrial Production Increases

The Federal Reserve said on Aug 17 that industrial production grew 0.7% in July on a month-over-month basis, beating expectations of a 0.4% rise. July’s jump follows a 0.2% rise in June and a 0.8% increase in May. Industrial production includes output at factories, mines and utilities.

Manufacturing output increased 1.4% in July aided by a jump in vehicle output, as several automakers canceled the annual retooling shutdown to make up for the lost time and crisis mounted by a global semiconductor shortage. Production at automobile factories soared 11.2% in July as global semiconductor shortage compelled carmakers to adjust their production schedules.

Excluding automobile, manufacturing output increased 0.7% last month. Moreover, manufacturing was 0.8% above the pre-pandemic levels in July.

Capacity utilization for the manufacturing sector increased 1.1% in July to 76.6%, while overall capacity utilization for the industrial sector rose 0.7% to 76.1%.

Economic Recovery on Track

Manufacturing accounts for nearly 11.9% of the total U.S. economy. The sector is being supported lately by the huge coronavirus relief stimulus, low interest rates and continued higher demand for goods. Interestingly, July’s jump comes despite a surge in fresh COVID-19 cases.

It can thus be said that the growing cases of the Delta variant of the COVID-19 haven’t posed as a deterrent in factories getting functional to   maximum capacity. Moreover, the broad-based vaccination drive has given people both confidence and the power to make purchases.

This has been pushing demand for goods, which is making manufacturers make maximum use of the available resources. Although a shade below expectations, the U.S. economy grew 6.5% in the second quarterwhich proves its underlying strength.

Manufacturing activity has been gathering steam in the United States ever since the economy started reopening. Earlier this month, the Institute of Supply Management said that manufacturing activity grew for the 14th consecutive month in July after contracting in April 2020.

Our Choices

Given this scenario, it would be ideal to invest in the five stocks we have picked below. All these stocks have a Zacks Rank #1 (Strong Buy) or 2 (Buy) and assure good returns. You can see the complete list of today’s Zacks #1 Rank stocks here.

Dover Corporation DOV is an industrial conglomerate, producing a wide range of specialized industrial products and manufacturing equipment. The company said on Jul 27 that it has completed the acquisition of CDS Visuals, a provider of software as a service (SaaS) 3D visualization solutions, customized for industrial applications, for an undisclosed sum.

The company’s expected earnings growth rate for the current year is 32.6%. The Zacks Consensus Estimate for current-year earnings improved 7.4% over the past 30 days. The company has a Zacks Rank #2.

Applied Industrial Technologies, Inc. AIT 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. The company made quite a few big acquisitions in the past few months. Last year, it acquired Advanced Control Solutions, known for providing automation products and engineered solutions on machine vision equipment and software. Earlier this year, the company acquired Gibson Engineering Company, Inc.

The company’s expected earnings growth rate for the current year is 16%. The Zacks Consensus Estimate for current-year earnings improved 0.7% over the past 60 days. The company has a Zacks Rank #2.

Altra Industrial Motion Corp. AIMC is one of the leading manufacturers and distributors of a diversified range of motion control, electromechanical power transmission and automation products. Earlier this year, the company entered into a strategic partnership with MTEK Industry AB.

The company’s expected earnings growth rate for next year is 19.4%. The Zacks Consensus Estimate for current-year earnings improved 6.2% over the past 30 days. The company has a Zacks Rank #2.

Kadant Inc. KAI is a leading supplier of a range of products and systems for the global papermaking and paper-recycling industries, including de-inking systems, stock-preparation equipment, water-management systems, and papermaking accessories. 

The company’s expected earnings growth rate for next year is 46.6%. The Zacks Consensus Estimate for current-year earnings improved 20.8% over the past 30 days. The company has a Zacks Rank #1.

A. O. Smith Corporation AOS is a diversified manufacturer serving customers worldwide. The company is one of the world's leading manufacturers and marketers of residential and commercial water heating equipment, offering a comprehensive line featuring the best-known brands in the industry.

The company’s expected earnings growth rate for next year is 26.9%. The Zacks Consensus Estimate for current-year earnings improved 1.1% over the past 30 days. The company has a Zacks Rank #2.


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