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Industrial Production Hits 6-Month High in May: 5 Top Picks

Nalak Das

U.S. industrial production recorded its highest gain in May since December 2018. Most importantly, U.S. manufacturing output registered its first monthly gain of 2019. A strong and broad-based gain in U.S. factory output provided some respite to concern that the manufacturing sector is cooling in the face of a lingering trade war with China and slowdown in the global economy.

Moreover, capacity utilization edged up in overall industrial production and the manufacturing sector, indicating higher industrial activities. At this stage, it will be prudent to invest in manufacturing stocks with a favorable Zacks Rank and strong growth potential.

Robust Industrial Production Data in May

On Jun 14, the Federal Reserve reported that U.S. industrial production increased by 0.4% in May, highest in six months. The figure was also above the consensus estimate of growth of 0.2%. In April, industrial production contracted by 0.4%. Industrial Production rose 2% year over year in May.

Across the board, all major market groups, such as, consumer goods, business equipment, nonindustrial supplies, construction and materials rose 0.5%, 0.2%, 0.4%, 0.2% and 0.3%, respectively. Sector wise, manufacturing, mining and utilities grew 0.2%, 0.1% and 2.1%, respectively.

Overall capacity utilization was 78.1% in May compared with 77.9% in April. However, capacity utilization is still 1.7% below the average figure of 79.8% for the 1972-2018 period. This indicates that a solid ground for growth of industrial production still exists without affecting inflation. This is a key metric for the Fed to consider while taking decisions on interest rate.

Manufacturing Output Returns to Growth Trajectory

The most-important inference from the industrial production data of May is the rebound of U.S. manufacturing sector. This sector registered growth of 0.2%, marking its first monthly gain in 2019. In January and February, U.S. manufacturing declined by 0.6%. In March, this sector remained unchanged only to decline again in April by 0.5%.

In May, solid 2.4% growth of motor vehicles and parts more than offset 1.9% decline in primary metals and 0.1% drop in fabricated metals. Light truck assemblies increased to 8.43 million from 7.84 million in April. Auto assemblies grew to 2.56 million from 2.44 million in April. Capacity utilization of manufacturing sector also edged up to 75.7% from 75.6% in the previous month. However, the figure still 2.6% behind its average 78.3% for the period 1972-2018.

Notably, the manufacturing sector constituted nearly 12% of U.S. GDP. A weak ISM manufacturing index for May and tepid industrial production data of China in May, which fell to its 17-year low level, compelled several economists to consider that manufacturing activities are slowing globally, which is affecting U.S. industrial products. However, the industrial production data for May eased the concerns to some extent.

Our Top Picks  

Considering the above-mentioned factors, we narrowed down our search to five manufacturing stocks with a strong growth potential. Each of these stocks carry either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The chart below shows price performance of our five picks year to date.

Chart Industries Inc. GTLS manufactures and sells engineered equipment and packaged solutions and provides value-add services for the energy and industrial gas industries worldwide. It sports a Zacks Rank #1. The company has expected earnings growth rate of 51.5% for the current year. The Zacks Consensus Estimate for the current year has improved 3.7% over the last 60 days.

Dover Corp. DOV provides equipment and components, specialty systems, consumable supplies, software and digital solutions, and support services worldwide. It carries a Zacks Rank #2. The company has expected earnings growth rate of 16.9% for the current year. The Zacks Consensus Estimate for the current year has improved 1% over the last 60 days.

Flowserve Corp. FLS designs, develops, manufactures, distributes, and services industrial flow management equipment in the United States, Europe, the Middle East, Africa, Asia and internationally. It carries a Zacks Rank #2. The company has expected earnings growth rate of 25.1% for the current year. The Zacks Consensus Estimate for the current year has improved 2.3% over the last 60 days.

AZZ Inc. AZZ provides galvanizing and metal coating services, welding solutions, specialty electrical equipment and highly engineered services to the power generation, transmission, distribution, refining and industrial markets. It has a Zacks Rank #2. The company has expected earnings growth rate of 32.1% for the current year. The Zacks Consensus Estimate for the current year has improved 2.8% over the last 60 days.

The Manitowoc Co Inc. MTW provides engineered lifting equipment for the construction industry in the Americas, Europe, Africa, the Middle East, and the Asia Pacific. It has a Zacks Rank #2. The company has an expected earnings growth rate of 117.2% for the current year. The Zacks Consensus Estimate for the current year has improved 6.1% over the last 60 days.

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