Orders for long-lasting goods made in U.S. factories rose sharply in June, although rising prices have been a growing concern that has made people spend cautiously. This once again proves that demand for durable goods is on the rise, while other factors are indicating a cooling economy.

Although a large chunk of the orders in June were for defense aircraft, overall demand for durable goods remains high, indicating that several sectors are still going strong and haven’t succumbed to inflationary pressures. Given this scenario, stocks like DXP Enterprises, Inc. (DXPE Quick QuoteDXPE - Free Report) , Nordson Corporation (NDSN Quick QuoteNDSN - Free Report) , The LGL Group, Inc. (LGL Quick QuoteLGL - Free Report) and Ferguson plc (FERG Quick QuoteFERG - Free Report) are expected to gain in the near term.

Durable Goods Orders Rise

The Commerce Department said on Jul 27 that orders for long-lasting durable goods (intended to last at least three years) manufactured in U.S. factories jumped 1.9% in June to a seasonally adjusted $272.6 billion. Economists had expected a 0.5% decline in orders.

June’s jump was across several categories. However, the bulk of the orders came for military aircraft and motor vehicles, including transportation equipment. Excluding defense, orders for durable goods increased 0.4%, just as much as it was expected.

Orders for defense aircraft and parts soared a whopping 80.6% to $9.76 billion.

Expectations of a rise in orders in June were nil, as rising costs are pushing up prices. However, higher demand despite rising prices has been driving production at American factories, so apparently this hasn’t had an impact. 

Moreover, June’s jump follows a 0.8% rise in May and a 0.4% increase in April, which also proves that last month’s rise was unexpected. Overall orders for long-lasting durable goods have now increased in eight of the past nine months, indicating the underlying strength in the economy.

High Demand for Goods

The increase in June is yet another evidence that manufacturers remain confident although rising prices are denting consumer sentiments. June’s jump was largely driven by orders for military aircraft. Nonetheless, orders have been growing across sectors.

Orders for core capital goods increased 0.5% in June. Core capital goods shipments are a key component used to calculate equipment investment in the GDP measurement.

Moreover, orders for computers and other related products jumped an impressive 5.9% to $1.95 billion. Also, orders for electrical appliances and electrical equipment grew 2.5% to $13.71 billion.

Shipments of manufactured capital goods increased 0.3% in June or $0.7 billion to $269.6 billion. In June, inventories of manufactured durable goods rose to $484.8 billion, up $1.8 billion or 0.4% from the previous month. This came after a rise of 0.6% in May.

The pandemic saw people spending more on goods and less on services. As restrictions started getting lifted and the economy started functioning at the optimum level, people started spending more on services.

Even then, demand for goods is high, which is also helping the retail sector to a great extent.

Our Choices

Given this scenario, it will be prudent to invest in stocks with a favorable Zacks Rank that are poised to gain from the solid durable goods orders. We have narrowed down our search to four such stocks. Each of these stocks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

DXP Enterprises, Inc. is a leading product and service distributor that adds value and total cost savings solutions to industrial customers throughout the United States, Canada, Mexico and Dubai. DXPE provides innovative pumping solutions, supply-chain services and maintenance, repair, operating and production services. DXP Enterprises' business segments include Service Centers, Innovative Pumping Solutions and Supply Chain Services.

DXP Enterprises' expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved more than 100% over the past 60 days. DXPE has a Zacks Rank #1.

Nordson Corporation is one of the leading manufacturers as well as distributors of products and systems designed to dispense, apply and control adhesives, coatings, polymers, sealants, biomaterials, and other fluids. NDSN’s product line includes single-use components, stand-alone units for low-volume operations and microprocessor-based automated systems for high-speed, high-volume production lines. Nordson Corporationhas operations in over 35 countries.

Nordson Corporation’s expected earnings growth rate for the current year is 20.4%. The Zacks Consensus Estimate for current-year earnings has improved 0.5% over the past 60 days. NDSN has a Zacks Rank #2.

The LGL Group, Inc. operates through its principal subsidiary M-tron Industries, Inc., which designs and manufactures customized electronic components used primarily to control the frequency or timing of electronic signals in communications systems. LGL has operations in Orlando, Florida, Yankton, South Dakota, Yantai, China and Noida, India. The LGL Group’s products are used in infrastructure equipment for the telecommunications and network equipment industries, as well as in electronic systems for applications in defense, aerospace, earth-orbiting satellites, medical devices, instrumentation, industrial devices, and global positioning systems.

The LGL Group’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 6.5% over the past 60 days. LGL has a Zacks Rank #2.

Ferguson plc is a distributor of plumbing and heating products to professional contractors and consumers primarily in the United States, UK, Nordics, Canada and Central Europe. FERG, formerly known as Wolseley plc, is headquartered in Zug, Switzerland.

Ferguson’s expected earnings growth rate for the current year is 43.4%. The Zacks Consensus Estimate for current-year earnings has improved 10.6% over the past 60 days. FERG has a Zacks Rank #2.