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4 Industrial Manufacturing Stocks to Gain From Improved Supply Chains
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The Zacks Manufacturing – General Industrial industry is poised to benefit from improving supply chains, resulting in easier availability of raw materials and faster deliveries. Despite a slowdown in manufacturing activities, strength across prominent end markets should help the industry stay afloat.
Investments in product development and technological advancements, and focus on expanding operations through strategic acquisitions are expected to boost the industry’s growth. Ingersoll Rand Inc. (IR - Free Report) , Dover Corporation (DOV - Free Report) , Applied Industrial Technologies, Inc. (AIT - Free Report) and Flowserve Corporation (FLS - Free Report) are a few industry participants that can capitalize on the prevalent opportunities.
About the Industry
The Zacks Manufacturing – General Industrial industry comprises companies that produce a wide range of industrial equipment. Some industry players offer power transmission products, bearings, engineered fluid power components and systems, industrial rubber products, vapor-abrasive blasting equipment, vehicle-powered truck refrigeration systems, adhesive, gel coat equipment, flow-control components and linear motion components. Industrial manufacturing companies also reconstruct and assemble pumps, valves, speed reducers and hydraulic motors. The companies provide services to original equipment manufacturing and maintenance, repair and overhaul customers. These end users belong to the mining, oil and gas, forest products, agriculture and food processing, fabricated metals, chemicals and petrochemicals, transportation and utilities industries.
4 Trends Shaping the Future of the Manufacturing General Industrial Industry
Weakness in the Manufacturing Sector: Of late, the industry has been grappling with persistent weakness in the manufacturing sector. Per the Institute for Supply Management report, the Manufacturing PMI (Purchasing Manager’s Index) touched 48.5% in June 2024, reflecting a decline from 48.7% and 49.2% recorded in May and April, respectively. A figure less than 50% indicates a contraction in manufacturing activity. Also, the New Orders Index remained in the contraction territory for the third consecutive month, registering 49.3% in June. The second quarter of the year registered a slowdown in orders compared with the beginning of the year, with weaker-than-expected readings on manufacturing and consumer spending.
Easing Supply-Chain Disruptions: While the lingering effects of supply-chain disruptions persist, primarily related to the availability of electronic components, the situation has improved, as evident from the ISM report’s Supplier Deliveries Index, which reflected faster deliveries in the second quarter. Easing supply-chain issues should support industrial manufacturing companies’ growth in 2024. An anticipated reduction in raw material costs should also aid the bottom line of the industry participants.
Technological Advancement Benefits: The U.S. industrial manufacturing companies have been focused on digitizing their business operations with the latest technologies and business models. Digitization has been enabling several manufacturers to boost their competitiveness with enhanced operational productivity, product quality and reduced costs. A surge in the e-commerce business has also been proving beneficial for the industry players.
Acquisition-Based Growth Strategy: The industry participants focus on an acquisition-based growth strategy to expand their network and product offerings. This helps them foray into new markets and solidify their competitive position. Exposure to various end markets helps industrial manufacturing companies offset risks associated with a single market. Also, continuous investments in product development and innovation augur well for the industry’s growth.
Zacks Industry Rank Indicates Strong Prospects
The Zacks Manufacturing – General Industrial industry, housed within the broader Zacks Industrial Products sector, currently carries a Zacks Industry Rank #94. This rank places it in the top 38% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of solid earnings prospects for the constituent companies in aggregate. Looking at the aggregate earnings estimate revision, it appears that analysts are keeping more faith in this group's earnings growth potential. The industry’s earnings estimates for the current year have moved up 5% over the past year.
Given the industry’s bright near-term prospects, we will present a few stocks worth considering for your portfolio. But before that, it is worth taking a look at the industry’s stock market performance and current valuation.
Industry Outperforms Sector but Lags S&P
The Zacks Manufacturing – General Industrial industry has outperformed the broader sector but lagged the Zacks S&P 500 composite index over the past year.
Over this period, the industry has appreciated 18.0% compared with the sector and the S&P 500 Index’s growth of 10.7% and 20.3%, respectively.
One-Year Price Performance
Industry's Current Valuation
On the basis of forward 12-month Price-to-Earnings (P/E), which is a commonly used multiple for valuing manufacturing stocks, the industry is currently trading at 21.44X compared with the S&P 500’s 21.48X. However, it is above the sector’s P/E ratio of 18.54X.
In the past five years, the industry has traded as high as 26.92X and as low as 15.92X, with the median being 20.90X, as the chart below shows.
Price-to-Earnings Ratio vs SP500
Price-to-Earnings Ratio vs Sector
4 Manufacturing-General Industrial Stocks Leading the Pack
Ingersoll Rand: Headquartered in Davidson, NC, Ingersoll Rand is a global industrial company with expertise in industrial and mission-critical flow creation technologies. It is poised to benefit from its solid product portfolio, innovation capabilities and focus on boosting aftermarket businesses. Higher orders for compressors, industrial vacuums and blowers are likely to drive its performance in the quarters ahead. Growth in short-cycle orders, along with strong book-and-ship orders, are likely to be tailwinds for the company.
This Zacks Rank #2 (Buy) company reported better-than-expected results in each of the last four quarters, the earnings surprise being 12.9%, on average. The Zacks Consensus Estimate for Ingersoll Rand’s 2024 earnings has been revised upward by 1.2% to $3.31 in the past 60 days. Its shares have surged 48.4% in the past year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: IR
Dover: Based in Downers Grove, IL, Dover is an industrial conglomerate producing a wide range of specialized industrial products and manufacturing equipment. The company stands to gain from solid bookings at industrial, aerospace & defense and waste handling markets along with its restructuring programs and solid financial position.
This Zacks Rank #2 company’s earnings have surpassed the Zacks Consensus Estimate twice in the trailing four quarters, while it came in line and missed the mark once each in the other two quarters. In the past 60 days, the company’s earnings estimates have been stable at $9.10 for 2024. Shares of DOV have gained 20.7% in the past year.
Price and Consensus: DOV
Applied Industrial Technologies: Headquartered in Cleveland, OH, the company is a distributor of value-added industrial products, including engineered fluid power components, bearings, specialty flow-control solutions and power transmission products. It is poised to benefit from strength across the food and beverage, lumber and wood, mining and refining end markets. Also, AIT’s product development initiative, buyouts and shareholder-friendly policies raise its attractiveness. For fiscal 2024, Applied Industrial expects year-over-year sales growth of 1-2.5%.
This Zacks Rank #2 company reported better-than-expected results in each of the last four quarters, the earnings surprise being 8.2%, on average. In the past 60 days, the company’s earnings estimates have been stable at $9.62 for fiscal 2024 (ended June 2024, results awaited). It has soared 41.9% in the past year.
Price and Consensus: AIT
Flowserve: Based in Irving, TX, the company is a leading manufacturer and aftermarket service provider of comprehensive flow-control systems globally. FLS is thriving on the back of record booking levels due to strong manufacturing, repair and operations, and aftermarket activity. Solid operational execution, pricing actions and improving supply chains have been supporting the company’s margins.
This Zacks Rank #2 company reported better-than-expected results in each of the trailing four quarters, the earnings surprise being 21.7%, on average. Flowserve’s bottom-line estimates have remained stable at $2.66 for 2024 in the past 60 days. Shares of the company have gained 32.5% in the past year.
Price and Consensus: FLS
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4 Industrial Manufacturing Stocks to Gain From Improved Supply Chains
The Zacks Manufacturing – General Industrial industry is poised to benefit from improving supply chains, resulting in easier availability of raw materials and faster deliveries. Despite a slowdown in manufacturing activities, strength across prominent end markets should help the industry stay afloat.
Investments in product development and technological advancements, and focus on expanding operations through strategic acquisitions are expected to boost the industry’s growth. Ingersoll Rand Inc. (IR - Free Report) , Dover Corporation (DOV - Free Report) , Applied Industrial Technologies, Inc. (AIT - Free Report) and Flowserve Corporation (FLS - Free Report) are a few industry participants that can capitalize on the prevalent opportunities.
About the Industry
The Zacks Manufacturing – General Industrial industry comprises companies that produce a wide range of industrial equipment. Some industry players offer power transmission products, bearings, engineered fluid power components and systems, industrial rubber products, vapor-abrasive blasting equipment, vehicle-powered truck refrigeration systems, adhesive, gel coat equipment, flow-control components and linear motion components. Industrial manufacturing companies also reconstruct and assemble pumps, valves, speed reducers and hydraulic motors. The companies provide services to original equipment manufacturing and maintenance, repair and overhaul customers. These end users belong to the mining, oil and gas, forest products, agriculture and food processing, fabricated metals, chemicals and petrochemicals, transportation and utilities industries.
4 Trends Shaping the Future of the Manufacturing General Industrial Industry
Weakness in the Manufacturing Sector: Of late, the industry has been grappling with persistent weakness in the manufacturing sector. Per the Institute for Supply Management report, the Manufacturing PMI (Purchasing Manager’s Index) touched 48.5% in June 2024, reflecting a decline from 48.7% and 49.2% recorded in May and April, respectively. A figure less than 50% indicates a contraction in manufacturing activity. Also, the New Orders Index remained in the contraction territory for the third consecutive month, registering 49.3% in June. The second quarter of the year registered a slowdown in orders compared with the beginning of the year, with weaker-than-expected readings on manufacturing and consumer spending.
Easing Supply-Chain Disruptions: While the lingering effects of supply-chain disruptions persist, primarily related to the availability of electronic components, the situation has improved, as evident from the ISM report’s Supplier Deliveries Index, which reflected faster deliveries in the second quarter. Easing supply-chain issues should support industrial manufacturing companies’ growth in 2024. An anticipated reduction in raw material costs should also aid the bottom line of the industry participants.
Technological Advancement Benefits: The U.S. industrial manufacturing companies have been focused on digitizing their business operations with the latest technologies and business models. Digitization has been enabling several manufacturers to boost their competitiveness with enhanced operational productivity, product quality and reduced costs. A surge in the e-commerce business has also been proving beneficial for the industry players.
Acquisition-Based Growth Strategy: The industry participants focus on an acquisition-based growth strategy to expand their network and product offerings. This helps them foray into new markets and solidify their competitive position. Exposure to various end markets helps industrial manufacturing companies offset risks associated with a single market. Also, continuous investments in product development and innovation augur well for the industry’s growth.
Zacks Industry Rank Indicates Strong Prospects
The Zacks Manufacturing – General Industrial industry, housed within the broader Zacks Industrial Products sector, currently carries a Zacks Industry Rank #94. This rank places it in the top 38% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of solid earnings prospects for the constituent companies in aggregate. Looking at the aggregate earnings estimate revision, it appears that analysts are keeping more faith in this group's earnings growth potential. The industry’s earnings estimates for the current year have moved up 5% over the past year.
Given the industry’s bright near-term prospects, we will present a few stocks worth considering for your portfolio. But before that, it is worth taking a look at the industry’s stock market performance and current valuation.
Industry Outperforms Sector but Lags S&P
The Zacks Manufacturing – General Industrial industry has outperformed the broader sector but lagged the Zacks S&P 500 composite index over the past year.
Over this period, the industry has appreciated 18.0% compared with the sector and the S&P 500 Index’s growth of 10.7% and 20.3%, respectively.
One-Year Price Performance
Industry's Current Valuation
On the basis of forward 12-month Price-to-Earnings (P/E), which is a commonly used multiple for valuing manufacturing stocks, the industry is currently trading at 21.44X compared with the S&P 500’s 21.48X. However, it is above the sector’s P/E ratio of 18.54X.
In the past five years, the industry has traded as high as 26.92X and as low as 15.92X, with the median being 20.90X, as the chart below shows.
Price-to-Earnings Ratio vs SP500
Price-to-Earnings Ratio vs Sector
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4 Manufacturing-General Industrial Stocks Leading the Pack
Ingersoll Rand: Headquartered in Davidson, NC, Ingersoll Rand is a global industrial company with expertise in industrial and mission-critical flow creation technologies. It is poised to benefit from its solid product portfolio, innovation capabilities and focus on boosting aftermarket businesses. Higher orders for compressors, industrial vacuums and blowers are likely to drive its performance in the quarters ahead. Growth in short-cycle orders, along with strong book-and-ship orders, are likely to be tailwinds for the company.
This Zacks Rank #2 (Buy) company reported better-than-expected results in each of the last four quarters, the earnings surprise being 12.9%, on average. The Zacks Consensus Estimate for Ingersoll Rand’s 2024 earnings has been revised upward by 1.2% to $3.31 in the past 60 days. Its shares have surged 48.4% in the past year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: IR
Dover: Based in Downers Grove, IL, Dover is an industrial conglomerate producing a wide range of specialized industrial products and manufacturing equipment. The company stands to gain from solid bookings at industrial, aerospace & defense and waste handling markets along with its restructuring programs and solid financial position.
This Zacks Rank #2 company’s earnings have surpassed the Zacks Consensus Estimate twice in the trailing four quarters, while it came in line and missed the mark once each in the other two quarters. In the past 60 days, the company’s earnings estimates have been stable at $9.10 for 2024. Shares of DOV have gained 20.7% in the past year.
Price and Consensus: DOV
Applied Industrial Technologies: Headquartered in Cleveland, OH, the company is a distributor of value-added industrial products, including engineered fluid power components, bearings, specialty flow-control solutions and power transmission products. It is poised to benefit from strength across the food and beverage, lumber and wood, mining and refining end markets. Also, AIT’s product development initiative, buyouts and shareholder-friendly policies raise its attractiveness. For fiscal 2024, Applied Industrial expects year-over-year sales growth of 1-2.5%.
This Zacks Rank #2 company reported better-than-expected results in each of the last four quarters, the earnings surprise being 8.2%, on average. In the past 60 days, the company’s earnings estimates have been stable at $9.62 for fiscal 2024 (ended June 2024, results awaited). It has soared 41.9% in the past year.
Price and Consensus: AIT
Flowserve: Based in Irving, TX, the company is a leading manufacturer and aftermarket service provider of comprehensive flow-control systems globally. FLS is thriving on the back of record booking levels due to strong manufacturing, repair and operations, and aftermarket activity. Solid operational execution, pricing actions and improving supply chains have been supporting the company’s margins.
This Zacks Rank #2 company reported better-than-expected results in each of the trailing four quarters, the earnings surprise being 21.7%, on average. Flowserve’s bottom-line estimates have remained stable at $2.66 for 2024 in the past 60 days. Shares of the company have gained 32.5% in the past year.
Price and Consensus: FLS