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Durable Goods Orders Rise in August: 5 Solid Stocks to Buy

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The U.S. manufacturing sector is on solid ground, with consistent performance over some time now. This has seen new orders for durable goods increasing at a fast pace. Although many had expected it to slow down, the rally continued in August, with new orders for long-lasting durable goods rising in August.

The jump was driven by the recent pickup in demand for transportation orders. Also, government aid and hopes of a faster-than-expected economic recovery has beenhelping drive demand for durable goods.

Durable Goods Orders Increase

The Commerce Department said on Sep 27 that new orders and shipments for U.S.-made capital goods increased in August. New orders for durable goods jumped a solid 1.8% in August after rising a revised 0.5% in July. Economists had predicted that durable goods orders would jump 0.6%.

The impressive jump was driven by higher demand for electronic goods and electronic products. Also, a surge in orders for transportation equipment led to more new orders. After declining 0.4% in July, new orders for transportation equipment rose 5.5% in August.

Excluding orders for transportation equipment, durable goods orders increased 0.2% in August. Orders for non-defense aircraft and parts surged 77.9% in August after declining 36.3% in July.

Economic Growth on Track

Moreover, orders for non-defense capital goods excluding aircraft, which is an indicator to gauge business spending, increased 0.5% in August. Shipments for durable goods rose 0.7% in August. Also, business spending on goods has now increased in double digits for the fourth straight month.

In fact, people have been spending a lot on electronic goods and equipment. New orders for electronic goods and computers increased 1.4% in August.

Raw material shortage and a rise in COVID-19 cases due to the fast-spreading Delta variant had made economists predict that demand for core capital goods would decline. However, it seems that hasn’t dented the confidence of people.

This at the same time shows the underlying strength in the economy. Although economists have predicted economic growth to somewhat slow down in the third quarter due to shortage of raw materials and rising cases of COVID-19, GDP grew a solid 6.6% in the second quarter, which indicates that the economy is on track for a strong recovery. 

Also, with inventories extremely low, orders for core capital goods are likely to remain strong in the coming months and aid the manufacturing sector that accounts for 11.9% of the overall economy.

Understandably, people are more confident about the economy now and despite hindrances in supply chain for factories, orders have been on the rise.

Our Choices

Given this scenario, it will be prudent to invest in stocks with a favorable Zacks Rank that are poised to gain from the solid durable goods orders. We 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.

Emerson Electric Co. EMR is a diversified global engineering and technology company, with presence in Europe, the Americas, and Asia, Middle East & Africa. It offers a wide range of products and services to customers in consumer, commercial and industrial markets.

The company’s expected earnings growth rate for the current year is 17.9%. The Zacks Consensus Estimate for current-year earnings improved 3.6% over the past 60 days. It has a Zacks Rank #2.

Eaton Corporation, PLC ETN is a diversified power management company, and a global technology leader in electrical components and systems. It sells products in more than 175 countries and has 99,000 employees in 59 countries. 

The company’s expected earnings growth rate for the current year is 60.4%. The Zacks Consensus Estimate for current-year earnings improved 8.1% over the past 60 days. It 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’s expected earnings growth rate for the current year is 12%. The Zacks Consensus Estimate for current-year earnings improved 6.2% over the past 60 days. The company has a Zacks Rank #2.

DXP Enterprises, Inc. DXPE is a leading products and service distributor that adds value and total cost savings solutions to industrial customers throughout the United States, Canada, Mexico and Dubai. DXP provides innovative pumping solutions, supply chain services and maintenance, repair, operating and production services that emphasize and utilize DXP's vast product knowledge and technical expertise in rotating equipment, bearings, power transmission, metal working, industrial supplies and safety products and services. 

The company’s expected earnings growth rate for the current year is 77.6%. The Zacks Consensus Estimate for current-year earnings improved 70.9% over the past 60 days. The company has a Zacks Rank #1.

Helios Technologies, Inc HLIO develops and manufactures hydraulic and electronic control solutions. The company's operating subsidiaries includes Sun Hydraulics, Enovation Controls and Faster Group. Its operating business segment consists of Hydraulics and Electronics.

The company’s expected earnings growth rate for the current year is 70.5%. The Zacks Consensus Estimate for current-year earnings improved 12.7% over the past 60 days. It has a Zacks Rank #1.


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Eaton Corporation, PLC (ETN) : Free Stock Analysis Report
 
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