Manufacturing Activities Rise in August: 4 Stocks to Consider

U.S. manufacturing sector has been recovering over the past few months despite the coronavirus-induced global market downturn. Notably, the turnaround has primarily been fuelled by consistent improvement in orders, production and other activities in the sector.

Per the latest Institute for Supply Management’s (“ISM”) report published on Sep 1, U.S. manufacturing activity expanded for the fourth month in a row in August. The ISM’s manufacturing index increased to 56% in August from 54.2% in the prior month and beat the consensus estimate of 54.5%. Also, ISM’s measure of production in August rose to 63.3% from 62.1% in July, marking its highest level since January 2018. Also, the new orders index increased to 67.6% in August from 61.5% in the prior month. Notably, August witnessed the highest expansion in ISM’s manufacturing index since November 2018, depicting continued recovery in economic activities as more companies are ramping up production on strong growth in orders.

Notably, broad-based growth in new orders and production was observed across manufacturing industries, driven by gains in most major categories — electronics, machinery, non-metallic mineral, primary metals, plastics and rubber products, and even transportation equipment.

With the gradual reopening of major global economies and signs of stabilization in new coronavirus cases in the United States, the manufacturing sector is expected to continue benefitting from increased domestic orders from existing and new customers as well as higher export demand for industrial products. In addition to these, the sector is witnessing growth in the e-commerce business, particularly amid the coronavirus outbreak, which has opened up opportunities for companies.

Our Top Picks

Amid such a scenario, we suggest four manufacturing stocks from different industries under the ambit of the Zacks Industrial Products sector. These stocks possess strong growth potential and have witnessed robust earnings estimate revisions in the last 30 days. Each of these stocks carries a Zacks Rank #1 (Strong Buy) or 2 (Buy) and are well-positioned to capitalize on the opportunities in the sector.  You can see the complete list of today’s Zacks #1 Rank stocks here.

Astec Industries, Inc. ASTE: Based in Chattanooga, TN, Astec Industries is a leading manufacturer and marketer of road building equipment. Also, it manufactures equipment and components unrelated to road construction, including equipment for the mining, quarrying, construction and demolition industries; industrial heat transfer equipment; and commercial and industrial burners. The Zacks Rank #1 stock has rallied 29.2% against the Zacks Manufacturing – Construction and Mining industry’s decline 4.8% year to date. In the past 30 days, the Zacks Consensus Estimate for its 2020 earnings has moved 50.4% upward, while the same for 2021 earnings has risen 48%.

Notably, the company is poised to benefit from its focus on growing part sales volume and international business, and launching new products. Also, its restructuring actions and diligent cost-cutting initiatives bode well.

Deere Company DE: The Moline, IL-based company is currently the world’s largest producer of agricultural equipment. It has been manufacturing agricultural machinery since 1837, under the iconic John Deere brand with its signature green and yellow color scheme. Year to date, shares of the Zacks Rank #1 company have rallied 25.6% compared with the Zacks Manufacturing – Farm Equipment industry’s rise of 17.1%. The Zacks Consensus Estimate for fiscal 2020 (ending October 2020) earnings has been revised 19.3% upward over the past 30 days, while the same for fiscal 2021 (ending October 2021) earnings has been raised 17.1%.

Deere is well poised for long-term growth, backed by steady investments in new products with advanced technologies. Growing reliance on advanced technology to run complex operations smoothly will continue to drive its revenues. In addition, growing U.S farm income bodes well for agricultural equipment demand.

Regal Beloit Corporation RBC: Based in Beloit, WI, Regal Beloit is a leading manufacturer of electrical and mechanical motion control products. Year to date, shares of the Zacks Rank #2 company have rallied 18.1% compared with the Zacks Manufacturing – Electronics industry’s rise of 0.8%. The Zacks Consensus Estimate for its current-year earnings has been revised 15.9% upward over the past 30 days, while the same for 2021 earnings has been hiked 5.4%.

It is well-poised to benefit from improving order trends, cost-control measures, existing restructuring and supply-chain efforts, reorganization actions as well as shareholder-friendly policies.

Roper Technologies, Inc. ROP: The Sarasota, FL-based company is a leading designer, manufacturer, and distributor of engineered products and solutions as well as software. The Zacks Rank #2 stock has rallied 23.2% against the Zacks Manufacturing – General Industrial industry’s decline of 4% year to date. In the past 30 days, the Zacks Consensus Estimate for its 2020 earnings has climbed 2.1%, while the same for 2021 earnings has moved up 8.7%.

The company is likely to gain from strength across its network software businesses along with increased demand for medical products. Also, high recurring revenue mix, strong customer retention, expanding networks, and strength across its DAT and ConstructConnect businesses bode well.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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