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Buy 4 Stocks Despite Weak Industrial Production in February

Nalak Das

On Mar 15, Federal Reserve reported that industrial production data for the month of February fell below the consensus estimate. However, industrial production recorded positive growth in February against a contraction in January. Capacity utilization also fell below consensus expectation.

Nevertheless, a closer look at the report reveals that despite softness of manufacturing output, production of utilities products and mining has increased. Market group wise, increase in materials, business supplies and defense and space equipment were offset by decrease in consumer goods, business equipment and construction supplies.

Industrial Production Rises in February

Per Federal Reserve report, industrial production in February inched up 0.1% compared with consensus estimate of 0.4%. Per revised estimate, in January, industrial production decreased 0.4% instead of prior estimate of a decline of 0.6%.

Primary reason behind less than expected industrial production data is a decline of 0.4% in the manufacturing products. However, as per revised estimate, manufacturing production fell 0.5% in January instead of the prior estimate of a drop of 0.9%.

Consequently, the report clearly indicates that the rate of decline in manufacturing has decreased in February. Overall industrial production also entered positive territory recovering from January’s slump. However, it failed to meet consensus estimates. Moreover, utilities output rose a significant 3.7% in February. Mining output increased 0.3% while oil and gas drilling grew by 2.8%.  

Industry researchers were highly concerned about future capital spending by the U.S. manufacturing sector owing to a stiff rise in interest rate in 2018 and apprehensions regarding an impending global economic slowdown. However, business spending is likely to maintain its momentum driven by several tailwinds.


Three Major Drivers of Business Spending

First, on Jan 30, Fed chair Jerome Powell said that the central bank will maintain its dovish monetary stance at least for the time being. Better-than-expected inflation data (both consumer price index and producer price index) also strengthened investors’ confidence that the central bank will not take an aggressive stance in 2019.

Second, the 11-month long trade dispute between the United States and China is heading toward a likely resolution. If the two countries can reach an amicable solution, a major concern for global economic slowdown will be eliminated. The International Monetary Fund has identified ongoing tariff-related hassle between the United States and China as the primary factor behind a perceived global economic slowdown in 2019.

Third, in order to streamline their own economies, both China and the 19-member European Union have decided to inject economic stimulus with an immediate effect. Notably, China and Eurozone economies are the two of the largest trading partners of the United States. Consolidation of Chinese and Eurozone economies will enable the United States to export more especially when the U.S. dollar price index is gradually diminishing.

Our Picks

At present, the U.S. economy is firmly placed on growth trajectory albeit at a slow pace. We narrowed down our search to four stocks from those industries which performed well in February each carrying either a Zacks Rank #1 (Strong Buy) or 2 (Buy) and strong growth potential. You can see the complete list of today’s Zacks #1 Rank stocks here.

Materion Corp. MTRN is engaged in the production and supply of high-performance engineered materials in the United States and internationally. It sports a Zacks Rank #1. The company has expected earnings growth rate of 12.6% for the current year. The Zacks Consensus Estimate for the current year has improved 9.4% over the last 60 days.

Arconic Inc. ARNC engineers, manufactures, and sells lightweight metals worldwide. It carries a Zacks Rank #2. The company has expected earnings growth rate of 20.6% for the current year. The Zacks Consensus Estimate for the current year has improved 5.1% over the last 60 days.

Hubbell Inc. (HUBB) designs, manufactures, and sells electrical and electronic utility products in the United States and internationally. It carries a Zacks Rank #2. The company has expected earnings growth rate of 11% for the current year. The Zacks Consensus Estimate for the current year has improved 3.9% over the last 60 days.

NextEra Energy Inc. NEE generates, transmits, distributes, and sells electric power to retail and wholesale customers in North America. It has a Zacks Rank #2. The company has expected earnings growth rate of 9.1% for the current year. The Zacks Consensus Estimate for the current year has improved 0.4% over the last 60 days.

Zacks' Top 10 Stocks for 2019

In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-holds for the year?

Who wouldn't? Our annual Top 10s have beaten the market with amazing regularity. In 2018, while the market dropped -5.2%, the portfolio scored well into double-digits overall with individual stocks rising as high as +61.5%. And from 2012-2017, while the market boomed +126.3, Zacks' Top 10s reached an even more sensational +181.9%.

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NextEra Energy, Inc. (NEE) : Free Stock Analysis Report
 
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