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U.S. Manufacturing Thriving on Strong Demand: 5 Picks

·6 min read

U.S. manufacturing industries remain at the forefront of the economy's revival from the pandemic-led devastations. After a minor setback in January due to the spread of the Omicron variant of coronavirus, U.S. manufacturing activities regained momentum in February. Two recently released data have revealed this fact.

At this stage, it will be prudent to invest in manufacturing stocks with a favorable Zacks Rank. Five of them are Deere & Co. DE, Nordson Corp. NDSN, Dover Corp. DOV, W.W. Grainger Inc. GWW and IDEX Corp. IEX.

U.S. Manufacturing on Solid Footing

On Mar 1, the Institute of Supply Management (ISM) reported that its manufacturing index for February rose to 58.6% from 57.7% in January. The consensus estimate was 57.7%. This was the 21st consecutive month of growth for the U.S. manufacturing industry. Notably, any reading above 50% indicates expansion in manufacturing activities.

Demand for U.S. manufacturing remained strong as the new orders index increased 3.8% and new export orders rose 3.4% to 57.1%. Moreover, the backlog of orders index increased to the historically high levels of 65%.
Consumption of U.S. manufacturing products stayed solid as the production index registered a gain of 0.7% to 58.5% and the employment index rose 1.6% to 52.9%. The employment index expanded for the sixth straight month.

On the other hand, the supplier deliveries index increased 1.5% to 66.1% due to prolonged supply-chain disruptions. Despite this, the price index ( price paid by manufacturers to input suppliers) fell 0.5% to 75.6%.

Moreover, the IHS Markit has reported that the U.S. Manufacturing Purchasing Managers’ Index (PMI) rebounded to 57.3% in February from 55.5% in January. Selling prices climbed at the sharpest rate since November 2021. Expectations for output for the coming year were the strongest since November 2020.

U.S. manufacturers across sizes are expanding their scale of operations and hiring more despite soaring wages and salaries to cater to robust demand. The sky-high savings are allowing U.S. citizens to indulge in their demands that were pent up during lockdowns and in turn compelling manufacturers to expand their scale of operations. Notably, manufacturing activities accounts for nearly 12% of the U.S. GDP.

Our Top Picks

We have narrowed our search to five manufacturing stocks with strong growth potential for 2022 that have witnessed robust earnings estimate revisions within the last 30 days. Each of our picks carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Deere is likely to benefit from growth in non-residential investment and strong order activity from independent rental companies. Focus on new products equipped with the latest technology and features to make farming automated and expand in precision agriculture should drive growth in the long haul.

The ongoing rally in commodity prices will continue to fuel agricultural equipment demand, encouraging farmers to boost spending on new farm equipment. Replacement demand on the need to upgrade old equipment should support Deere's revenues.

Deere has an expected earnings growth rate of 19.4% for the current year (ending October 2022). The Zacks Consensus Estimate for DE’s current-year earnings improved 0.7% over the last 30 days.

Nordson is set to benefit from strengthening businesses in end markets, the implementation of the NBS Next growth framework, acquisitions and the policy of rewarding shareholders handsomely. For fiscal 2022, NDSN anticipates revenues to grow 6-10% year over year to $2,504-$2,598 million. Anticipated adjusted earnings of $8.36-$9.13 per share suggest an 8-18% increase.

Nordson has an expected earnings growth rate of 16.5% for the current year (ending October 2022). The Zacks Consensus Estimate for current-year earnings improved 0.8% over the last 7 days.

Dover is poised to benefit from strong end-market demand, bookings rates and robust backlog in the current year. Strong growth in pumps and process solutions, fueling solutions, food retail, and marking & coding and automotive aftermarket businesses is aiding DOV. Its cost-reduction initiatives, acquisitions, e-commerce, new product development and inorganic investment in core business platforms should also drive growth.

Dover’s earnings estimates for the current year have undergone upward revisions lately. It expects to deliver margin expansion and earnings per share growth in 2022 on productivity and cost initiatives. DOV anticipates adjusted earnings per share between $8.45 and $8.65 for 2022.

Dover has an expected earnings growth rate of 12.7% for the current year. The Zacks Consensus Estimate for current-year earnings improved 0.8% over the last 30 days.

W.W. Grainger expects 2022 earnings per share between $23.50 and $25.50, indicating year-over-year growth of 18.5% to 28.5%. Total daily sales growth of GWW is expected between 7.5% and 10.5%, backed by the ongoing momentum in the High Touch Solutions and the Endless Assortment segments.

W.W. Grainger will continue to gain from efforts to strengthen customer relationships in the United States. GWW is outpacing the U.S. maintenance, repair and operating market aided by growth initiatives. W.W. Grainger is witnessing strong growth in non-pandemic product volume.

GWW has an expected earnings growth rate of 24% for the current year. The Zacks Consensus Estimate for current-year earnings improved 4.4% over the last 30 days.

IDEX is poised to gain from a diversified business structure, solid product portfolio, strengthening end markets and buyouts in the quarters ahead. IEX’s pending acquisition of Nexsight and its businesses will likely be complete in first-quarter 2022.

IDEX serves customers in various markets, including life science, fire and rescue, water & wastewater, chemical, agricultural, food, general industrial, and energy industries. As a result, gains in one or more markets will help in offsetting the weakness in the other markets.

IDEX has an expected earnings growth rate of 17.3% for the current year. The Zacks Consensus Estimate for current-year earnings improved 4.1% over the last 30 days.


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Dover Corporation (DOV) : Free Stock Analysis Report

Deere & Company (DE) : Free Stock Analysis Report

W.W. Grainger, Inc. (GWW) : Free Stock Analysis Report

IDEX Corporation (IEX) : Free Stock Analysis Report

Nordson Corporation (NDSN) : Free Stock Analysis Report

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