Manufacturing activity in the United States grew at a strong pace once again in April. The manufacturing sector has been performing well ever since the economy reopened following the COVID-induced lockdown.
One of the major reasons behind the robust performance by the sector is that people are spending a lot more on goods compared to services following the pandemic, as a result of which they are shelling out more on goods.
Manufacturing Sector on a High
According to an ISM report released on May 3, manufacturing activity expanded showing a reading of 60.7. Although the growth came in lower than expectations, and below the 37-year high achieved in March, manufacturing activity has now increased for the 11th consecutive month.
Manufacturing activity had contracted in March, April and May 2020 due to the pandemic. The ISM PMI has remained above 50 since June 2020 when the economy started reopening. Anything above 50% indicates expansion in manufacturing activities.
Both the New Orders Index and the Production Index edged lower but the sector has been on the growth track. The New Orders Index decreased to 64.3% from March’s reading of 68 %, while the Production Index came up with a reading of 62.5%, declining 5.6% from the prior month.
Manufacturing Activity Poised to Grow
Manufacturing activity has been on the rise ever since the economy reopened and started this year on a high following the coronavirus vaccine rollout. At the same time, new COVID-19 cases and deaths have been on the decline over the past couple of months.
As more people start getting vaccinated they will feel confident, and further help the manufacturing sector. Moreover, the new round of coronavirus stimulus checks have started reaching millions, which has led them to spending more. It is thus likely that with more spending power, new orders for goods will rise in the coming months.
This comes almost as an assurance given that both consumer confidence and consumer spending increased in April. Also, the Fed recently took the decision not to change the interest rate, which is as low as 0-0.25%. This will continue to significantly reduce expenditure on capital goods, and simultaneously make U.S. currency cheaper and its manufactured products more competitive in the international market.
Our Choices
Given this scenario, it is ideal to invest in these five stocks. All these stocks have a Zacks Rank #1 (Strong Buy) or 2 (Buy) and assure good returns. You can see the complete list of today’s Zacks #1 Rank stocks here.
Caterpillar Inc (NYSE:CAT). CAT is the largest global manufacturer of construction and mining equipment. Given that it serves a gamut of sectors — infrastructure, construction, mining, oil & gas and transportation — the company is considered a bellwether of the global economy.
The company’s expected earnings growth rate for the current year is 35.2%. The Zacks Consensus Estimate for current-year earnings has improved 10.5% over the past 60 days. The company has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Deere (NYSE:DE) & Company DE is the world’s largest producer of agricultural equipment, manufacturing agricultural machinery since 1837 under the iconic John Deere brand.
The company’s expected earnings growth rate for the current year is 84.2%. The Zacks Consensus Estimate for current-year earnings has improved 0.9% over the past 60 days. The company has a Zacks Rank #2 (Buy).
Dover Corporation (NYSE:DOV) DOV is an industrial conglomerate producing a wide range of specialized industrial products and manufacturing equipment.
The company’s expected earnings growth rate for the current year is 21.9%. The Zacks Consensus Estimate for current-year earnings has improved 7.1% over the past 60 days. The company has a Zacks Rank #2.
Graco (NYSE:GGG) Inc. GGG manufactures, designs and sells equipment and systems used to measure, move, control, spray and dispense fluid as well as powder materials.
The company’s expected earnings growth rate for the current year is 27.7%. The Zacks Consensus Estimate for current-year earnings has improved 6.4% over the past 60 days. The company has a Zacks Rank #2.
Applied Industrial Technologies, Inc. AIT is a distributor of value-added industrial products — including engineered fluid power components, bearings, specialty flow control solutions, power transmission products and miscellaneous industrial supplies.
The company’s expected earnings growth rate for the current year is 2.9%. The Zacks Consensus Estimate for current-year earnings has improved 0.5% over the past 60 days. The company has a Zacks Rank #2 (Buy).
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