The U.S. manufacturing sector has started to rebound on signs of gradual economic recovery from the coronavirus crisis. Improving job data and pick-up in manufacturing activities, triggered by the resumption of business and factory operations, are stimulating the sector.
Expansion in Manufacturing Sector Infuses Optimism
The U.S. Purchasing Managers’ Index, published by the Institute for Supply Management came in at 52.6% in June, up from the May reading of 43.1%, driven by the rebuilding of the economy. Employment, production and new orders index rebounded during the month. Notably, a PMI reading above 50% denotes expansion in the sector after three consecutive months of contraction. The June PMI recorded its largest sequential gain since August 1980, when it had increased 10.5%. Of the 18 manufacturing industries, 13 reported growth in June. The New Orders Index increased to 56.4% in June from May’s reading of 31.8%. The Production Index came in at 57.3% up from May’s 33.2%. The Employment Index grew to 42.1% in June from 32.1% in May, with most employees returning to work. These figures clearly indicate that the U.S. manufacturing is steadily entering into an expansion territory after being impacted by the coronavirus pandemic.
Improving Job Data, Economic Recoveries — Signs of Hope
According to Automatic Data Processing Inc.’s (ADP) report, private-sector payrolls in the United States added 2.4 million jobs in June. Nearly 1.4 million Americans filed for unemployment benefits during the week ending Jun 20. Jobless claims have dropped since a record high of 6.86 million in the week ended Mar 28. The unemployment rate declined to 13.3% in May, marking an improvement from April’s record 14.7%, when it registered job losses of 20.7 million. Economists expect more job additions and reduction in the unemployment rate in June as companies are now rehiring the workforce. These numbers reflect that economic activities have started to rebound in the nation, after being hit hard in March and April.
Though the resurgence of coronavirus cases in the United States is giving rise to uncertainties in the stock markets, the government’s financial stimulus packages, clinical trials for the coronavirus vaccine, rate cuts and improved manufacturing activities are bolstering investor confidence. Further, the U.S. economy has started to gain momentum on improved retail sales and recovery in the housing market.
Over the past year, the Industrial Products sector has lost 5%, as against the S&P 500’s growth of 4.8%.The coronavirus pandemic has dealt a major blow to the sector this year, which had already been reeling under waning global demand and the long-standing U.S.-China trade tensions. Uncertainties related to the pandemic will keep weighing on the sector until the situation stabilizes. Further, the recovery in U.S. manufacturing activities might be short-lived, given the second wave of coronavirus cases in the country. This might lead to further lockdown measures and restriction in business activities. Nevertheless, in these uncertain times, manufacturing companies are focusing on supporting margins through cost-control actions and increased productivity.
4 Industrial Stocks to Bet on
We have picked four Industrial Products stocks that hold promise. Our proprietary methodology comes in handy while zeroing in on these stocks. Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy), offer solid investment opportunities. You can see the complete list of today’s Zacks #1 Rank stocks here. Further, these companies have healthy earnings growth expectations for the current year, and four-quarter average positive earnings surprise history.
Lakeland Industries, Inc. LAKE: This Decatur, AL-based company sports a Zacks Rank #1 with a VGM score A, at present. The Zacks Consensus Estimate for fiscal 2020 earnings is pegged at 41 cents, suggesting year-over-year growth of 127.8%. The company has a trailing four-quarter positive earnings surprise of 722.9%, on average.
AZZ Inc. AZZ: This Fort Worth, TX-based company currently carries a Zacks Rank #2 and has a VGM score A. The Zacks Consensus Estimate for fiscal 2020 earnings is pegged at 64 cents per share, indicating year-over-year growth of 8.5%. The company has a trailing four-quarter positive earnings surprise of 6.2%, on average.
Chart Industries, Inc. GTLS: This Ball Ground, GA-based company holds a Zacks Rank #2 at present and has a VGM score B. The Zacks Consensus Estimate for current-year earnings is pinned at $2.58 per share, calling for year-over-year growth of 2.4%. The company has a trailing four-quarter average positive earnings surprise of 1.4%.
TPI Composites, Inc. TPIC: This Scottsdale, AZ-based company currently carries a Zacks Rank of 2 and has a VGM score B. The Zacks Consensus Estimate for this year’s earnings is pegged at 44 cents per share. The consensus mark indicates a year-over-year jump of 197.8%. The company has a trailing four-quarter average positive earnings surprise of 17.8%.
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