As far as sectors go, this isn’t the best place to be in. The Zacks Sector rank is 13 out of 16, that’s the bottom 19%. And yet, this is the group of companies that grew on a very bad day when the S&P 500 dropped 0.94%, Dow 30 0.87%, Nasdaq 1.18% and Russell 2000 0.82%.
With a year to date return of 11.3% and a 62% earnings beat ratio so far this quarter, the industrial products sector is a mixed bag.
The Office Supplies industry within industrials has returned 16.8% YTD and posted an earnings beat ratio of 100% so far. Zacks #1 (Strong Buy) ranked Ennis EBF and Zacks #2 (Buy) ranked Avery Dennison Corp. AVY are investment opportunities here. EBF earnings are expected to grow 13.95% this year after the recent upward revision post earnings. Both 2019 and 2020 estimates for AVY are up post earnings. Both companies have a VGM score B.
The Uniform and Related segment within industrials has returned 11.6% YTD and posted mixed results so far. Zacks #2 ranked Cintas Corp. CTAS is an opportunity here. The company is expected to post earnings growth of 12.3% this year on revenue that will grow 6.1%.
The Containers - Paper and Packaging industry within industrials has returned 10.77% YTD and generated an earnings beat ratio of 75% so far. Zacks #2 ranked Sealed Air Corp. SEE jumped over 9% yesterday in response to a very strong earnings report. The company has a VGM score B.
The Pollution Control industry within industrials has returned 9.6% YTD and posted an earnings beat ratio of 100% so far. Zacks #2 ranked Heritage-Crystal Clean, Inc. HCCI and Sharps Compliance Corp. SMED are opportunities here. HCCI revenues are expected to increase around 8% this year, but its earnings are expected to jump 67.8%. Similarly, SMED is expected to see earnings growth of 158% on revenue that will grow around 6%. HCCI and SMED have VGM Score A.
The Manufacturing - Construction and Mining industry has returned 4.2% YTD and has not posted an earnings beat this quarter. Zacks #2 ranked H&E Equipment Services, Inc. HEES is expected to generate revenue and earnings growth of 8.9% and 9.9%, respectively in 2019. The company, which has a VGM score B, will report at the end of the month.
And that isn’t all. If you’re willing to take a little bit of risk, there’s Zacks #1 ranked Alarm Holdings ALRM and Axon Enterprise AAXN in the Security & Services industry. Both stocks have been smashing estimates over the past year with average four-quarter beats of 27.3% for ALRM and 391.7% for AAXN. They are expected to report by month’s end, so estimates may get revised around then. Both have a growth score A.
We’re likely not at the bottom of the selloff, so there will be a few days of uncertainty, especially considering the fact that the U.S. and China don’t appear closer to a deal. And that’s one thing that could be bad news for the sector. The other factor is positive, i.e. the Fed taking a moderate stand on interest rates. So the names with positive VGM scores would be safer.
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