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Durable Goods Orders Increase in June: 4 Stocks to Buy

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New orders for U.S.-made capital goods rose for the second straight month in June, suggesting that spending on equipment is going strong as the economy continues to reopen. June’s jump comes despite production getting hampered due to supply constraints.

Shipment of core capital goods that is used to measure investment in gross domestic product also witnessed a solid jump in June. Also, government aid and hopes of a faster-than-expected economic recovery helped drive demand for durable goods.

Core Capital Goods Orders Increase

The Commerce Department said on Jul 27 that new orders for long-lasting durable goods rose $2.1 billion or 0.8% in June to $257.6 billion on a month-over-month basis. Although it was a bit lower than the upwardly revised 3.2% in May, durable goods orders increased in 13 of the last 14 months, indicating that the economy is on track for a recovery.

The growth was driven by a solid $1.6 billion or 2.1% increase in orders for transportation equipment, which reached $77.5 billion. Orders for transportation equipment increased for two straight months. Orders excluding transportation equipment rose 0.3% in June.

Economic Growth on Track

New orders for core durable goods (which excludes defense aircraft) increased $2.6 billion or 3.1% to $88.9 billion in June after surprisingly declining 0.1% in May. New orders for non-defense aircraft and parts, and defense aircraft and parts also saw a solid jump of 17% and 9.9%, respectively.

Orders for non-defense capital goods excluding aircraft, a key indicator of business spending, grew by 0.5% in June. Also, shipments of capital goods rose 1% or $2.5 billion to $250.7 billion in June. This marked the third increase in the past four months.

The jump in June indicated that the second quarter has so far been good with business spending on factory equipment better than expected. This comes after the government last month said that the economy grew at an annualized pace of 6.4% in the first quarter. Understandably, people are more confident about the economy now and despite hindrances in the supply chain for factories, orders have been on the rise.

Our Choices

Given this scenario, it is ideal to invest in stocks with a favorable Zacks Rank that are poised to gain from the solid durable goods orders. We have narrowed down our search to five 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.

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 has improved 8.8% over the past 60 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. 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 has 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 has improved 6.2% over the past 60 days. The company has a Zacks Rank #2.

Deere & Company DE is the world’s largest producer of agricultural equipment, manufacturing agricultural machinery since 1837 under the iconic John Deere brand with its signature green and yellow color scheme. 

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 1.6% over the past 60 days. The company has a Zacks Rank #2.


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