5 Industrial Stocks To Buy As Output Revs Up

Industrial production in the U.S. climbed at the fastest pace in more than a year in April, led by advances in utilities and factory output. This is a telltale sign that the country’s manufacturing slump is probably over and the economy has started the second quarter on a solid note.

Even though expansion at the ISM factory index was a bit uninspiring in April, it did show broad-based growth that includes almost all types of producers. And let’s not forget that this came after the Index’s first expansion in six months in March.

Banking on these positive indications, it will be wise to invest in stocks related to the industrial sector. The sector, which had hit a rough patch at the beginning of the year due to weak commodity prices and a stronger dollar, is in a much better health now. And the reasons are clear – oil prices have rebounded of late and the dollar has largely weakened against a bunch of major currencies.

Industrial Production Climbs

U.S. industrial production advanced 0.7% in April after declining in the two preceding months, according to the Board of Governors of the Federal Reserve System. This marks the highest climb for a single month since Nov 2014.

Output at utilities soared almost 6% in April, driven by higher demand for electricity and natural gas. This increase in utility output last month turned out to be the biggest gain in more than nine years. A return to normal temperature in April following a rather warmer-than-usual March was cited to be the primary reason behind this surge.

Factory output also went up 0.3% last month after declining at the same pace in March. This biggest component of overall production and a good measure of the economy’s health moved north as demand for big ticket items including machinery and cars picked up in April. Automotive production increased 1.3% in April, in contrast to the 1.4% drop in March. This is very much in line with the industrial data. U.S. light-vehicle sales increased 3.5% year over year to 1.51 million units in Apr 2016. April sales pulled up SAAR to 17.42 million units from 16.56 million units in Mar 2016 and 16.77 million units in Apr 2015.

Both utility and manufacturing output increased 0.4% over the year in April. Meanwhile, capacity utilization that shows how much industries are gaining as a share of potential output also ticked up in April. Capacity utilization rose to 75.4% in April from 74.9% in March.

ISM Manufacturing Index Continues to Expand

The ISM manufacturing index did slip a bit in April, but still continued to expand. According to Supply Management, the index of manufacturing activity came in at 50.8 in April, while in March the reading was 51.8. A reading above 50 for two straight months indicates continuous expansion. Moreover, 15 of the 18 manufacturing sectors have reported growth last month, the most since Feb 2013, making a strong case for the industrial sector.

New Orders and the Production index all came in above the 50 mark. Producers of apparel, paper, wood products, plastics and metals said that new orders grew. The measure of production, on the other hand, saw expansion in 15 industries, the most since Sept 2014. Demand for goods also seemed to have increased among overseas customers. The ISM’s index of export goods went up in April to touch its highest level since Nov 2014.

5 Solid Industrial Stocks to Add to Your Portfolio

The battered U.S. factory sector has shown signs of acceleration with industrial production in April jumping the most since Nov 2014. Another major indicator, the ISM factory index, has not only expanded in the last two months, but it also showed that the number of industries reporting an increase in orders and production have more than doubled since the beginning of this year.

Three-month slumps in dollar along with U.S. crude hitting a seven-month high are also welcome news for the industrial sector. During the start of the year, a stronger dollar had depressed demand for U.S. exports, while low oil prices adversely affected energy companies.

Given that the industrial goods sector is showing signs of life, investing in stocks from this sector will be a prudent choice. We have selected five stocks from the sector that possess a Zacks Rank #1 (Strong Buy) or #2 (Buy) and have also gained considerably in recent times.

However, it is important to remember that picking winning stocks may not be easy. Hence, we have narrowed down our search with a VGM score of ‘A’ or ‘B.’ Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners.

Unifi Inc. (NYSE:UFI) manufactures and sells polyester and nylon yarns mostly in the U.S. UFI is headquartered in Greensboro, NC. UFI has a Zacks Rank #2 and a VGM Score of ‘A’. In the last three-month period, the company has surged 9.8%.

Rexnord Corporation (NYSE:RXN) manufactures and services process and motion control, and water management products across the world including the U.S. RXN is headquartered in Milwaukee, WI. RXN has a Zacks Rank #2 and a VGM Score of ‘B’. In the last three-month period, the company has soared 12.7%.

Powell Industries, Inc. (NASDAQ:POWL) develops and sells custom-engineered equipment and systems for the distribution, control and monitoring of electrical energy. POWL is headquartered in Houston, TX. POWL has a Zacks Rank #2 and a VGM Score of ‘A’. In the last three-month period, the company has skyrocketed 25.9%.

Altra Industrial Motion Corp. (NASDAQ:AIMC) produces and markets mechanical power transmission components throughout the world including the U.S. AIMC is headquartered in Braintree, MA. AIMC has a Zacks Rank #2 and a VGM Score of ‘B’. In the last three-month period, the company has soared 13.9%.

Columbus McKinnon Corporation (NASDAQ:CMCO) manufactures and markets material handling products and services for various commercial and industrial end-user markets in the U.S. and internationally. CMCO is headquartered in Amherst, NY. CMCO has a Zacks Rank #2 and a VGM Score of ‘A’. In the last three-month period, the company has risen 2.1%.