5 Stocks To Buy From Top-Ranked Industrial Products Sector

Weakness in the technology sector as well as fears over the outcome of U.S.-China trade war pulled down the major U.S. indexes on the first trading day of April, though some recovery was witnessed a day later. These burning issues might influence investors’ view of the U.S. equity universe in the days ahead, especially for the companies in the tech sector.

However, despite these near-term concerns, we believe that the country’s solid fundamentals and some recent policy changes will help in strengthening its prospects. The most impressive was the implementation of the Tax Cut and Jobs Act in December 2017. This measure will help improve liquidity of the corporates, enabling them to make additional investment in growth projects.

Also, accelerating growth of the global economy — from 3.2% in 2016 to 3.7% in 2017 and 3.9% projected for 2018 by the International Monetary Fund — will support the country’s prospects. This premier institution expects the country to advance 2.7% in 2018 and 2.5% in 2019, reflecting hike of 0.4% for 2018 and 0.6% for 2019 from its earlier forecasts.

Based on our in-house classifications, the U.S. equity stocks have been grouped under 16 broad sectors. Each sector is given a rank calculated on the basis of the average of Zacks Rank of all the companies within it.

The Zacks Sector Rank of 1 is placed at the top, with the first eight sectors placed in the top half and the other eight in the bottom half. Over the last 10 years, using a one-week rebalance, the top half beat the bottom half by a factor of more than two. (To learn more visit: About Zacks Sector Rank)

Investors interest in gaining exposure in the U.S. equity universe can focus on stocks that are among the top-ranked Zacks sectors — Industrial Products and Construction.

Top-Ranked Industrial Products Sector

Industrial Products is one of the 16 broad Zacks sectors. It currently occupies the first position in the Zacks sectors list. Also, it has maintained its first position on the Zacks Sector heatmap this week, this being the fifth consecutive week of favorable 1 or 2 position. A brief on the sector’s past performance and future growth projections is provided below.

In the past three years, the sector yielded a solid 20.1% return.

In 2018, the sector’s earnings are projected to grow 19.6% year over year on revenue expansion of 8.2%. Margins are likely to expand 0.99%. Earnings growth is forecasted higher than 18.7% recorded in 2017. In the next three to five years, earnings of the Industrial Products sector are projected to grow 10.7%.

Strengthening job market as well as improving conditions in the housing market and pro-growth policies of the government is conducive to the sector’s growth. Moreover, one of the most important economic indicators, industrial production is currently favoring the sector.

In February, industrial production grew 4.4% year over year, marking the highest increase on a year-over-year basis since March 2011. Mining sector expanded 9.7%, utilities 10.5% and manufacturing 2.5%. Also, ISM Purchasing Managers’ Index or manufacturing index for March reflects expanding economic activities in the manufacturing sector — the key highlights being growing new orders, production activities, employment, new export orders and inventories.

5 Suitable Investment Picks in the Sector

Industrial Products sector comprises 26 sub-industries. Of these, roughly 77% are in the top half of the total 265 Zacks industries. Industries in the top half is believed to have higher chances of beating the bottom half. (To learn more visit: About Zacks Industry Rank)

Notably, companies dealing with uniforms and other related stuffs and services and those dealing in wire and cable products are currently in the top 1% of the 265 industries. Machinery companies dealing in material handling products and thermal products are in the top 3% while those dealing in electronics are in the top 7%.

We have zeroed in on five lucrative investment options from the Industrial Products sector.

Heritage-Crystal Clean, Inc. (NASDAQ:HCCI) : The company provides its services in the commercial, industrial and automotive repair end markets. It market capitalization is approximately $548 million.

It currently carries a Zacks Rank #1 (Strong Buy). Its investment appeal is further accentuated by a favorable VGM Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.

The stock’s industry is in the top 31% of the Zacks industry list. Its relative price change is 8.61, indicating that the stock’s price change year to date has outdone that of the S&P 500.

Earnings for the next three to five years are anticipated to grow 16.3%, higher than the projection for the sector. Also, its near-term earnings estimates have been revised upward in the last 60 days. The Zacks Consensus Estimate stands at 92 cents for 2018 and $1.07 for 2019, reflecting growth of 9.5% and 12.6% from the respective figures 60 days ago.

W.W. Grainger Inc. (NYSE:GWW) : The company primarily is a distributor of facilities maintenance products including safety and security supplies, material handling equipment, lighting and electrical products and any more. It also offers services comprising inventory management and energy efficiency solutions. It market capitalization is approximately $15.9 billion.

It currently carries a Zacks Rank #2 (Buy) and has a favorable VGM Score of B. The stock’s industry is in the top 14% of the Zacks industry list. It has outperformed the S&P 500 on a year-to-date basis, as evident from a relative price change of 22.88.

Earnings in the next three to five years are anticipated to grow 9.7%. Also, its near-term earnings estimates have been revised upward in the last 60 days. The Zacks Consensus Estimate currently stands at $13.83 for 2018 and $15.80 for 2019, reflecting growth of 0.1% and 0.2% from the respective figures 60 days ago.

Xylem Inc. (NYSE:XYL) : The company primarily provides products used for transportation, treatment and testing of water; products dealing with the usage of water; and solutions designed for conservation and efficient use of energy and water resources. Healthier residential, commercial and industrial applications businesses as well as ongoing productivity initiatives will boost profitability going forward. It market capitalization is approximately $13.8 billion.

It currently carries a Zacks Rank #2 and has a VGM Score of B. The stock’s industry is in the top 43% of the Zacks industry list. It has outperformed the S&P 500 on a year-to-date basis, as evident from a relative price change of 15.01.

Earnings in the next three to five years are anticipated to grow 17.8%, higher than the projection for the sector. Also, its near-term earnings estimates have been revised upward in the last 60 days. The Zacks Consensus Estimate stands at $2.92 for 2018 and $3.38 for 2019, reflecting growth of 0.3% and 0.6% from the respective figures 60 days ago.

A. O. Smith Corporation (NYSE:AOS) : The company primarily manufactures commercial and residential water heating equipment, as well as water treatment products. Strengthening water heater industry, robust consumer product demand in China and positive industry trends are some tailwinds for the company. Its market capitalization is approximately $10.8 billion.

It carries a Zacks Rank #2 and has a VGM Score of B. The stock’s industry is in the top 7% of the Zacks industry list. It has outperformed the S&P 500 year to date, as evident from a relative price change of 5.37.

Earnings for the next three to five years are anticipated to grow 13.3%, higher than the projection for the sector.

ACCO Brands Corporation (NYSE:ACCO) : The company provides branded office supplies. Of many brands, important are Kensington, Swingline, Quartet, Wilson Jones, Day-Timer and GBC. Its market capitalization is approximately $1.4 billion.

It carries a Zacks Rank #2 and has a VGM Score of A. The stock’s industry is in the top 10% of the Zacks industry list. It has outperformed the S&P 500 year to date, as evident from a relative price change of 5.62.

Earnings for the next three to five years are anticipated to grow 10%. Also, its near-term earnings estimates have been revised upward in the last 60 days. The Zacks Consensus Estimate stands at $1.35 for 2018, reflecting growth of 8.96% from the tally 60 days ago.

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