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6 Stocks to Buy as U.S. Manufacturing Activity Expands in May

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Manufacturing activity in the United States is putting up a great show and increased at a strong pace in May. The manufacturing sector continues to gather steam as the economy gradually reopens. In fact, manufacturing activity has been on the rise since the economy reopened after the COVID-induced lockdown in April-May 2020.

One of the major reasons behind the uptick in the sector’s performance is that people are spending more on goods and not services following the pandemic.

Manufacturing Activity Expands

According to an ISM report released on Jun 1, the manufacturing sector expanded at an impressive pace in May. The ISM Manufacturing PMI came up with a reading of 61.2 in May against 60.7 in April. May’s growth was higher than analysts’ expectations of 60.7. Moreover, manufacturing activity increased for the 12th consecutive month.

Last year, in March, April and May, manufacturing activity had nosedived with factories shut down temporarily. However, the ISM PMI has remained above 50 since June 2020 when the economy started reopening. Anything above 50% indicates expansion in manufacturing activities.

Besides, the New Orders Index, which declined last month, advanced to 67 from 64.3 in April. Althoughthe Production Index edged lower to 58.5% in May, the sector has been on the growth track. The Backlog of Orders Index was at 70.6%, up 2.4% from April’s reading of 68.2%. 

Also, the New Export Orders Index jumped 0.5% to 55.4%from 54.9% in April.

Manufacturing Activity Poised to Grow

The manufacturing sector has been expanding for the past year, which shows the underlying strength in the economy regardless of the pandemic. The jump in the New Orders Index and New Export Orders once again proves the growing demand for U.S. manufactured goods both in the domestic and international markets.

The sector is expected to grow from here as more people get vaccinated and the economy further reopens. The vaccination drive is in full swing, giving people the confidence to step out. Also, restrictions are being lifted, which means the economy is on track for recovery.

Besides, jobless claims have been on the decline for four consecutive weeks, which means that people have finally started getting back their jobs. As more jobs get created and vacancies continue to get filled up, manufacturing activity at factories is expected to accelerate.

Moreover, the new round of coronavirus stimulus checks has given people more power to spend. It is thus likely that with more spending power, new orders for goods will rise in the coming months.

This comes almost as an assurance given that consumer spending increased in May. Also, the Fed recently took the decision not to change the interest rate, which is as low as 0-0.25%. This will continue to significantly reduce expenditure on capital goods, and simultaneously make U.S. currency cheaper and its manufactured products more competitive in the international market.

Our Choices

Given this scenario, it is ideal to invest in these five stocks. 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.

Caterpillar Inc. CAT is the largest global manufacturer of construction and mining equipment. Given that it serves a gamut of sectors — infrastructure, construction, mining, oil & gas and transportation — the company is considered a bellwether of the global economy.

The company’s expected earnings growth rate for the current year is 47.3%. The Zacks Consensus Estimate for current-year earnings has improved 17.1% over the past 30 days. The company has a Zacks Rank #2.

Deere & Company DE is the world’s largest producer of agricultural equipment and manufacturing agricultural machinery since 1837 under the iconic John Deere brand.

The company’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 9.6% over the past 30 days. The company has a Zacks Rank #2.

Luxfer Holdings PLC LXFR is a materials technology company specializing in the design, manufacture and supply of high-performance materials, components and gas cylinders.

The company’s expected earnings growth rate for the current year is 16.5%. The Zacks Consensus Estimate for current-year earnings has improved 4.3% over the past 60 days. The company has a Zacks Rank #1.

Graco Inc. GGG manufactures, designs and sells equipment and systems used to measure, move, control, spray and dispense fluid as well as powder materials. 

The company’s expected earnings growth rate for the current year is 26.7%. The Zacks Consensus Estimate for current-year earnings has improved 5.6% over the past 60 days. The company has a Zacks Rank #2.

Dover Corporation DOV is an industrial conglomerate, producing a wide range of specialized industrial products and manufacturing equipment.

The company’s expected earnings growth rate for the current year is 21.9%. The Zacks Consensus Estimate for current-year earnings has improved 7.1% over the past 30 days. The company has a Zacks Rank #2.

AGCO Corporation AGCO is a leading manufacturer and distributor of agricultural equipment and related replacement parts. The company offers a full product line of farm equipment through a wide network of dealers and distributors across 140 countries.

The company’s expected earnings growth rate for the current year is 54.6%. The Zacks Consensus Estimate for current-year earnings has improved 18.3% over the past 30 days. AGCO Corporation carries a Zacks Rank #2.

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Deere & Company (DE) : Free Stock Analysis Report
 
AGCO Corporation (AGCO) : Free Stock Analysis Report
 
Caterpillar Inc. (CAT) : Free Stock Analysis Report
 
Graco Inc. (GGG) : Free Stock Analysis Report
 
Dover Corporation (DOV) : Free Stock Analysis Report
 
Luxfer Holdings PLC (LXFR) : Free Stock Analysis Report
 
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