U.S. manufacturing business continues to gather steam amid tariff-related uproar rooted by President Trump and other overseas countries, including China. Per the Institute for Supply Management (ISM) survey, the Purchasing Managers Index clocked its best gain since 2004 in August this year. The remarkable expansion was primarily backed by growth in orders, production and employment.
Growth in the ISM gauge validates strength of the U.S. economy that is poised for further growth on the back of increased public spending and reduced corporate tax rates. U.S. manufacturers are not only adding more jobs, but also moving ahead with relatively higher wages in the market.
Against this opportune backdrop, investors can bet on selective manufacturing stocks to fetch alluring returns.
ISM Manufacturing Index Hits 14-Year High
ISM Manufacturing gauge surprisingly jumped to a 14-year high last month. The index was pegged at 61.3% last month, higher than 58.1% recorded in July. A higher-than-50 reading indicates that the bulk of manufacturing companies within the economy are gaining strength. Per ISM – 16 out of 18 industries witnessed expansion in August, with maximum gains secured form computers & electronics, and food & beverages sectors.
New Orders Index was pegged at 65.1% in August, up 4.9 percentage points from the prior month, marking its best gain since this January. Also, Production, Supplier Deliveries and Inventories Indexes climbed 4.8 percentage points, 2.4 percentage points and 2.1 percentage point month over month to 63.3%, 64.5% and 55.4%, respectively.
Manufacturers on Hiring Spree
The ISM Employment index was at 58.5% in August, highest in last six months. Defying fears of trade war and workforce shortage, U.S. manufacturers have made it clear that hiring will not be ceased. Exclusively, the manufacturing sector has added around 37,000 jobs in July, with major gains in the durable goods domain. Notably, the sector has created 327,000 new jobs in the past 12-month period.
Additionally, manufacturers are paying better than other jobs. Average weekly earnings for manufacturing employees came in at $1,104.71 last month, more than $933.23 for the private sector taken together.
What Stoked the Rally?
Augusts’ ISM report revealed that the scale of manufacturing activity in the United States continued to rally for the 24th consecutive month, despite setbacks like shortage of skilled labourers, higher tariff and transportation expenses. In particular, an above 60 reading in New Orders Index for the 16th straight month, signifies that the sector is gathering steam on the back of a favorable demand side picture.
Corporate spending across manufacturing industries is shoring up at a healthy pace on the back of the December-enacted tax overhaul, increased government spending and rising oil prices.
Going forward, tax rates and the President’s long-awaited $1.5 trillion infrastructure program will likely expedite investments in factories, new equipment and other capital goods.
Top Five Picks
The U.S. economy is firmly placed at present and economic data is mostly favorable. Going forward, the manufacturing sector will likely continue to rally on the back of sturdier market demand.
In sync with this, apportioning your hard-earned money in selective manufacturing stocks will be a wise decision. We have handpicked five top-ranked manufacturing picks that will likely add a sparkle to your portfolio.
These picks have a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a VGM Scoreof A or B. Also, the stocks have witnessed positive earnings estimate revisions for the past 60 days.
Twin Disc, Incorporated TWIN manufactures, designs and sells heavy duty marine and off-highway power transmission equipment globally. The Zacks Consensus Estimate for earnings has moved up 17.3% to $1.76 per share for fiscal 2019 (ending June 2019). The company’s projected year-over-year earnings growth rate is currently pegged at 27.5% and 35.2% for fiscals 2019 and 2020, respectively. Twin Disc’s shares have gained 51.7% in the past year. The company sports a Zacks Rank #1 and has a VGM Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
Luxfer Holdings PLC LXFR manufactures and supplies high-performance components, materials, and high-pressure gas-containment devices. The company sports a Zacks Rank #1 and has a VGM Score of A. The Zacks Consensus Estimate for earnings has moved up 10.1% to $1.424 per share for 2018. The company’s projected year-over-year earnings growth rate is currently pegged at 39.2% and 16.2% for 2018 and 2019, respectively.Luxfer Holdings’ shares have gained 75.8% in the past year.
Alamo Group Inc. ALG designs, produces and sells infrastructure and agricultural maintenance equipment for industrial and governmental usage. The company holds a Zacks Rank #2 and has a VGM Score of A. The Zacks Consensus Estimate for earnings has moved up 3.9% to $5.93 per share for 2018. The company’s projected year-over-year earnings growth rate is currently pegged at 28.1% and 3.7% for 2018 and 2019, respectively.Alamo Group’s shares have gained 4.6% in the past year.
Ingersoll-Rand PLC IR manufactures, designs, sells and services commercial and industrial products. The company has a Zacks Rank #2 and VGM Score of B. The Zacks Consensus Estimate for earnings has moved up 4.7% to $5.54 per share for 2018. The company’s projected year-over-year earnings growth rate is currently pegged at 22.8% and 12.1% for 2018 and 2019, respectively.Ingersoll-Rand’s shares have gained 20.6% in the past year.
Columbus McKinnon Corporation CMCO manufactures and sells rigging tools, actuators, cranes, power control systems, and various other material handling products in the market. The company has a Zacks Rank #2 and VGM Score of A. The Zacks Consensus Estimate for earnings has moved up 4.4% to $2.59 per share for fiscal 2019 (ending March 2019). The company’s projected year-over-year earnings growth rate is currently pegged at 28.8% and 18.5% for fiscal 2019 and 2020, respectively.Columbus McKinnon’s shares have gained 31.1% in the past year.
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