U.S. manufacturing sector has been witnessing resurgence under the Trump administration since 2017, shrugging off its lengthy spell of weak productivity and sluggish growth. Despite a volatile 2018, this sector is still expanding and generating impressive number of jobs. Manufacturers have increased capital spending and hiring driven by massive tax overhaul, deregulatory measures, strong domestic economy and business sentiment.
Notably, manufacturing sector constitutes nearly 12% of the U.S. GDP. Any positive development on the United States – China trade war front will be highly beneficial for this sector. At this stage, investment in manufacturing stocks with a favorable Zacks Rank and strong growth potential will be a prudent decision.
U.S. Manufacturing Remains Solid
On Jan 3, the Institute for Supply Management (ISM) reported that the U.S. manufacturing expanded in December 2018 for the 116th consecutive month. In the last 12 months, the average value of the manufacturing index was pegged at 58.8, reflecting strong growth in the sector. Notably, any reading above 50 indicates overall growth of the manufacturing sector.
Importantly, Customers’ Inventories Index was pegged at 41.7 in December, reflecting 27th consecutive month of low (below 50 benchmark level) customer inventory. This will act as a major catalyst for the manufacturing sector in 2019.
Strong Hiring in Manufacturing Sector
According to the Department of Labor, the manufacturing sector generated 284,000 jobs in 2018, highest since 1997. This sector generated 207,000 jobs in 2017. Within the sector, durable goods industries, which produce industrial intermediaries, generated nearly 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 2025, the U.S. manufacturing sector will witness shortages of around 2 million skilled workers.
Positive Developments on Trade War Front
During Jan 7-8, high level delegations of both the United States and China have started dialogue in order to discuss a possible trade deal. Notably, trade related conflict between the United States and China prompted many experts to warn about a global economic slowdown in 2019.
Notably, on Dec 1, U.S. President Donald Trump and his Chinese counterpart Xi Jinping reached an initial agreement to find a permanent solution to the trade-related conflict between the two countries. The truce will be valid for the next 90 days during which the two countries will try to solve bilateral trade conflicts.
On Dec 29, President Donald Trump Tweeted that he had a "very good (telephonic) call" with Chinese President Xi Jinping regarding the lingering trade dispute between the two countries. Trump also added that progress toward a solution is “moving along very well.”
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 past one year.
DXP Enterprises Inc. DXPE is a leading products and service distributor that adds value and total cost savings solutions to industrial customers in the United States, Canada, Mexico and Dubai. 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 94.2% for current year. The Zacks Consensus Estimate for the current year has improved by 11.3% over the last 60 days.
EnerSys ENS is the global leader in stored energy solutions for industrial applications. It sports a Zacks Rank #1. The company has expected earnings growth of 9.9% for current year. The Zacks Consensus Estimate for the current year has improved by 2.8% over the last 60 days.
Zebra Technologies Corp. ZBRA designs, manufactures, and sells a range of automatic identification and data capture (AIDC) products worldwide. It carries a Zacks Rank #2. The company has expected earnings growth of 53.8% for current year. The Zacks Consensus Estimate for the current year has improved by 0.7% over the last 60 days.
The ExOne Co. XONE provides three-dimensional printing machines and printed products to industrial customers. It carries a Zacks Rank #2. The company has expected earnings growth of 31.2% for current year. The Zacks Consensus Estimate for the current year has improved by 10.4% over the last 60 days.
Twin Disc Inc. TWIN designs, manufactures and sells heavy duty off-highway power transmission equipment. It carries a Zacks Rank #2. The company has expected earnings growth of 21% for current year. The Zacks Consensus Estimate for the current year has improved by 1.8% over the last 60 days.
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