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U.S. Manufacturing Sector Firing on All Cylinders: 5 Picks

Nalak Das
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U.S. Manufacturing Sector Firing on All Cylinders: 5 Picks

Under Trump's presidency, manufacturing sector is flying high as manufacturers have increased capital spending and hiring.

U.S. manufacturing sector has been witnessing resurgence under the Trump administration since last year, shrugging off its lengthy spell of weak productivity and sluggish growth. Under Trump’s presidency, manufacturing sector is flying high as manufacturers have increased capital spending and hiring driven by massive tax overhaul, deregulatory measures, strong domestic economy and robust business sentiment.

Manufacturing sector constitutes nearly 12% of the U.S. GDP. At this stage, investment in manufacturing stocks with favorable Zacks Rank and strong growth potential will be a prudent decision.

Robust Manufacturing Data

On Oct 15, the New York Fed reported that the Empire State manufacturing index rose 2.1% to 21.1 in October surpassing September’s reading of 19. Notably, any reading above zero indicates improvement in manufacturing sector.

On Oct 1, the Institute for Supply Management (ISM) reported that the U.S. manufacturing index for the month of September was pegged at 59.8. Notably, any reading above 50 indicates overall growth of the manufacturing sector. In the last 12 months, the average value of the manufacturing index was pegged at 59.2, reflecting strong growth in the sector.

New orders index for the month of September was pegged at 61.8, reflecting strong demand for U.S. manufacturing goods. This index has remained 60 or above it for the last seventeen consecutive months.

Strong Hiring in Manufacturing Sector

According to the Department of Labor, up to September, the U.S. manufacturing sector has created more than 350,000 jobs since President Trump took charge on January 2017. Within the manufacturing sector, durable goods industries, which produce industrial intermediaries, generated 89% of job additions.

The National Association of Manufacturers reported that about 500,000 manufacturing jobs are currently available in the United States. A recent study by the Manufacturing Institute and Deloitte has projected that by the end of 2015, the U.S. manufacturing sector will witness shortages of around 2 million skilled workers.

Solid U.S. Economic Fundamentals

The U.S. GDP grew at 3.2% in the first half of 2018, better than the Trump administration’s target level of 3%. In the second quarter alone, U.S. GDP grew at 4.2%, marking its highest gain since the third quarter of 2014 and the third-best growth rate since 2008.

On Sep 26, the Federal Reserve raised forecast for 2018 and 2019 GDP growth from the 2.8% and 2.4% stated in June to 3.1% and 2.5%, respectively. The central bank’s latest GDP estimate also indicates that economic growth will remain stable throughout this year. The primary catalyst behind these positive revisions is the direct impact of tax cuts.

Our Picks

At present, the U.S. economy is firmly placed on growth trajectory. Strong manufacturing goods orders are normally associated with stronger economic activity.  Considering these positives, investing in manufacturing stocks with strong growth potential will be a lucrative move. We narrowed down our choice to five stocks each of which carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy).

The chart below depicts price performance of our five picks in the last three months.



Altra Industrial Motion Corp. AIMC is a designer, producer and marketer of electromechanical power transmission products. It sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here. The company has expected earnings growth of 25.9% for current year. The Zacks Consensus Estimate for the current year has improved by 1.6% over the last 60 days.

Hubbell Inc. HUBB is engaged in the design, manufacture and sale of electrical and electronic products to commercial, industrial, utility and telecommunications markets. It carries a Zacks Rank #2. The company has expected earnings growth of 23.4% for current year. The Zacks Consensus Estimate for the current year has improved by 0.7% over the last 60 days.

Flowserve Corp. FLS is one of the world's leading providers of fluid motion and control products and services. It has a Zacks Rank #2. The company has expected earnings growth of 25% for current year. The Zacks Consensus Estimate for the current year has improved by 0.6% over the last 60 days.

Kennametal Inc. KMT is a leading global supplier of tooling, engineered components and advanced materials consumed in production processes. It carries a Zacks Rank #2. The company has expected earnings growth of 18.9% for current year. The Zacks Consensus Estimate for the current year has improved by 0.3% over the last 60 days.

Plug Power Inc. PLUG an alternative energy technology provider, which engages in the design, development, commercialization, and manufacture of hydrogen and fuel cell systems for the material handling and stationary power markets. It has a Zacks Rank #2. The company has expected earnings growth of 41.7% for current year. The Zacks Consensus Estimate for the current year has improved by 2.7% over the last 60 days.

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