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U.S. Manufacturing Sector Grows in March: ETF & Stock Picks

Sanghamitra Saha
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Reflecting decent U.S. economic growth, the Institute for Supply Management’s Manufacturing PMI in the United States increased to 55.3 in March from February’s 54.2. The reading also surpassed market expectations of 54.5.

Growth in new orders (57.4 from 55.5 in February), production (55.8 from 54.8), employment (57.5 from 52.3) and prices (54.3 from 49.4) pulled off this beat. Investors should note that any reading of 50 or higher indicates growth.

Manufacturing numbers have been volatile in recent months. The March rebound thus came as a relief. Of the 18 manufacturing industries, 16 registered growth last month.

Any Wall of Worry?

A slowdown was witnessed for inventories (51.8 from 53.4), backlog of orders (50.4 from 52.3), new export orders (51.7 from 52.8) and supplier deliveries (54.2 from 54.9).  If the United States and China do not reach a concrete trade deal soon, the sector may continue to feel the pressure.

Surveyed companies from the Wood Products industry hinted that the Chinese trade war is still putting a cap on international business, but expectations are high that in April or May, business will recoil materially as trade war is showing signs of abatement. Companies from the Petroleum & Coal Products industry have been suffering from steel tariffs, which continue to increase input costs.

Beneficiaries of March Report

Whatever the case, below we highlight a few ETFs and stocks that may win in the coming days even though concerns prevail.

Food, Beverage and Tobacco Products

Strong customer orders have been benefiting the space.

Consumer Staples Select Sector SPDR Fund XLP

The Zacks Rank #1 (Strong Buy) fund has 25.2% focus on beverages while 19.7% weight goes to food and staples retailing. Food products have about 18.7% exposure while tobacco has about 8.80% exposure.

United Natural Foods Inc. UNFI

The Zacks Rank #2 (Buy) company is one of the largest publicly traded wholesale distributors to the natural, organic and specialty industry in the United States and Canada. It comes from a top-ranked Zacks industry (top 39%).

Petroleum and Coal Products

Oil prices have been on tear this year on fresh output cut by OPEC+, sanctions on Venezuela, dovish Fed comments and U.S.-Sino trade optimism. United States Oil Fund LP (USO) is up 32.7% this year (read: 5 Reasons Why Oil Saw the Best January: 5 ETF Winners).

VanEck Vectors Oil Services ETF OIH

The underlying index of the fund – the MVIS U.S. Listed Oil Services 25 Index – tracks the overall performance of U.S.-listed companies involved in oil services to the upstream oil sector, which includes oil equipment, oil services or oil drilling.

Helmerich & Payne Inc. HP

The Zacks Rank #2 company is a contract drilling company headquartered in Tulsa, OK, and engaged primarily in the drilling of oil and gas wells for exploration and production companies. It hails from a top-ranked Zacks industry (top 34%).

Computer and Electronic Products

The electronics industry seems to be stabilizing from a crisis. Lead times and costs have evened off in some commodities, and dynamic random-access memory prices are actually falling, per the surveyed companies.  

iShares U.S. Technology ETF IYW

This Zacks Rank #2 fund is heavy on Microsoft (15.8%) and Apple (14.8%). Software & Services (37.2%), Tech Hardware & Equipment (23.1%) and Media & Entertainment (20.3%) industries are the fund’s top three areas (read: How to Invest Like Warren Buffet With ETFs).

Methode Electronics Inc. MEI

This Zacks Rank #2 company is a global manufacturer of electronic components and subsystems. It belongs to a top-ranked Zacks industry (top 5%).

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Methode Electronics, Inc. (MEI) : Free Stock Analysis Report
 
Consumer Staples Select Sector SPDR Fund (XLP): ETF Research Reports
 
VanEck Vectors Oil Services ETF (OIH): ETF Research Reports
 
iShares U.S. Technology ETF (IYW): ETF Research Reports
 
United Natural Foods, Inc. (UNFI) : Free Stock Analysis Report
 
Helmerich & Payne, Inc. (HP) : Free Stock Analysis Report
 
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