The manufacturing sector may have been out of bound for investors for a while now, but renewed activities in the arena have made it imperative to consider the sector from an investment perspective. After all, the current low-rate environment is ideal for the sector’s revival and a surge in consumer spending ensures it will continue to thrive. Therefore, now could be the right time for investors to buy a few manufacturing stocks.
Manufacturing Activity Rebounded in June
After contracting for three months, U.S. manufacturing activity finally made a strong comeback in June. According to the Institute for Supply Management’s (ISM) report, manufacturing activity in the country hit its highest level in more than a year as the broader economy reopened in April-end.
The ISM’s index of national factory activity jumped to a reading of 52.6 in June from 43.1 in May. June’s uptick was the strongest since April 2019 and ended three consecutive months of contraction.
Factors Pushing Manufacturing Activity
First and foremost, the reopened economy boosted manufacturing activity. As more businesses reopened, consumer activity picked up in the country. This growth was evident in consumer spending and the housing market, which then impacted the U.S. manufacturing sector.
According to the Commerce Department, U.S. consumer spending rebounded strongly in May, jumping 8.2%. May’s rise was the largest uptick since the government started tracking the series in 1959. Consumer spending had declined by a historic 12.6% in April.
Although the number of new coronavirus cases in the country surged with the reopened economy, the ISM’s forward-looking new orders sub-index holds promise. The reading for June has come in at 56.4, which is the highest since January 2019. The index had a reading of 31.8 in May.
To get a clear perspective of the growth in manufacturing, one could consider the improvement in factory employment in June. New jobs in manufacturing rose by 356,000 last month. New jobs were added across durable goods, machinery and nondurable goods. New vacancies in motor vehicles and parts came in at 196,000, which were responsible for over half of the job gains in manufacturing.
New job additions in miscellaneous durable goods manufacturing (+26,000) and machinery (+18,000) were also remarkable. Coming to the nondurable goods component, the largest job additions occurred in plastics and rubber products (+22,000).
In fact, the ISM’s manufacturing employment measure climbed to a reading of 42.1 in June from 32.1 in May, marking the strong rise in activity in the manufacturing sector.
Finally, the current near-zero interest rate environment is ideal for businesses such as manufacturing to thrive. Low interest rates simply mean that these businesses can take a loan and maintain or expand their activities with ease. The rates, which are currently in the range of 0% to 0.25%, are expected to stay at this level for the next two and a half years.
4 Stocks to Buy
We have, therefore, chosen four manufacturing stocks that have gained momentum in a pandemic-hit economy. All these stocks carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Astec Industries, Inc. ASTE is a manufacturer and marketer of equipment and components for industries such as road building, aggregate processing, geothermal, water, oil and gas, and wood processing.
Astec Industries has an expected earnings growth rate of 36.2% for the next year. Shares of the company, which belongs to the Zacks Manufacturing - Construction and Mining industry, have gained 8.4% on a year-to-date basis compared to the industry’s decline of 14.5% during the same period. The Zacks Consensus Estimate for the company’s current-year earnings has moved 94% north in the past 60 days. Astec Industries carries a Zacks Rank #1.
iRobot Corporation IRBT is a designer, manufacturer and marketer of robots. iRobot has an expected earnings growth rate of 65.7% for the next year. Shares of the company, which belongs to the Zacks Industrial Automation and Robotics industry, have gained 69% on a year-to-date basis compared to the industry’s growth of 6.7% during the same period. The Zacks Consensus Estimate for the company’s current-year earnings has moved more than 100% north in the past 60 days. iRobot carries a Zacks Rank #2.
YETI Holdings, Inc. YETI is a designer and marketer of outdoor and recreation products. YETI has an expected earnings growth rate of 28.4% for the next year. Shares of the company, which belongs to the Zacks Leisure and Recreation Products industry, have gained more than 100% over the past three months compared to the industry’s growth of 82.2% during the same period. The Zacks Consensus Estimate for the company’s current-year earnings has moved 3% north in the past 60 days. YETI carries a Zacks Rank #2.
TPI Composites, Inc. TPIC is a manufacturer and marketer of composite wind blades and related precision molding and assembly systems to original equipment manufacturers.
TPI Composites has an expected earnings growth rate of more than 100% for the next year. Shares of the company, which belongs to the Zacks Industrial Services industry, have gained 31.8% on a year-to-date basis compared to the industry’s decline of 5.6% during the same period. The Zacks Consensus Estimate for the company’s current-year earnings has moved 29.4% north in the past 60 days. TPI Composites carries a Zacks Rank #2.
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