The U.S. manufacturing sector is finally showing signs of recovery as activity grew for the first time in more than two years. Continued price pressures over the past couple of years saw demand shrinking, weighing on overall manufacturing activity.
However, a sharp decline in inflation followed by the Fed’s rate cuts has eased price pressures to a great extent, boosting demand. Also, Donald Trump’s return to the White House has raised optimism surrounding the economy.
Given the positive sentiment, it would be ideal to invest in five stocks from the manufacturing sector — Applied Industrial Technologies, Inc. AIT, Graham Corporation GHM, AZZ Inc. AZZ and EnerSys ENS— that we have detailed below. 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.
Manufacturing Activity Grows
The Institute of Supply Management’s (ISM) survey, released on Monday, showed that its manufacturing PMI jumped to 50.9 in January, the highest reading since September 2022. The January reading was also sharply higher than December’s reading of 49.2 and beat the consensus estimate of 49.8.
This was also the first time that the PMI rose above the 50 mark since October 2022. The steady month-over-month growth suggests that the manufacturing sector is expanding, which is a favorable indicator for the overall economy.
Also, any reading above 50 indicates that the sector is expanding. Last month, eight industries, such as textile mills, primary metals, machinery and transportation equipment, reflected growth.
Rate Cuts Boosting Manufacturing Activity
The Federal Reserve hiked interest rates by 525 basis points since March 2022 as part of an aggressive monetary tightening campaign to fight 40-year-high inflation. The manufacturing sector was one of the biggest sufferers as higher borrowing costs on top of already-existing price pressures saw demand waning.
However, a sharp decline in inflation owing to the monetary tightening campaign saw the Federal Reserve finally launch its easing cycle in September 2024. The Fed has since cut interest rates by a total of 1 percentage point on three consecutive occasions to bring its benchmark policy rate down to the current range of 4.25-4.5%.
This has substantially eased borrowing costs, leading to a rebound in demand. However, fresh concerns grew last week after Trump announced that he would impose 25% tariffs on goods imported from Canada and Mexico, sparking trade war fears.
This could have impacted the manufacturing sector once again but the tariffs have been paused for the time being after initial negotiations with Canada and Mexico. This also saw markets rebounding on Monday after a massive selloff earlier in the session.
4 Industrial Products Stocks With Upside
Applied Industrial Technologies
Applied Industrial Technologies, Inc. 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. AIT’s products are mainly sold to original equipment manufacturers, and maintenance, repair, and operations customers in Australia, North America, Singapore and New Zealand.
Applied Industrial Technologies’ expected earnings growth for the current year is 1.2%. The Zacks Consensus Estimate for current-year earnings has improved 1.1% over the past 60 days. AIT currently has a Zacks Rank #2.
Graham Corporation
Graham Corporation designs and builds vacuum and heat transfer equipment for process industries and energy markets worldwide. GHM’s products include steam jet ejector vacuum systems and liquid ring vacuum pumps, surface condensers, Heliflows, water heaters and various types of heat exchangers.
Graham Corporation’s expected earnings growth for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 8.4% over the past 90 days. GHM presently sports a Zacks Rank #1.
AZZ Inc
AZZ Inc. is a global provider of metal coating services, welding solutions, specialty electrical equipment and highly engineered services to the markets of power generation, transmission, distribution and industrial in protecting metal and electrical systems used to build and enhance the world's infrastructure.
AZZ Inc.’s expected earnings growth for the current year is 14.6%. The Zacks Consensus Estimate for current-year earnings has improved 1.4% over the past 60 days. AZZ, presently, has a Zacks Rank #2.
EnerSys
EnerSys engages in the manufacturing, marketing and distribution of various industrial batteries. Additionally, ENS develops battery chargers and accessories, power equipment and outdoor cabinet enclosures. This apart, EnerSys provides support services for clients.
EnerSys’ expected earnings growth for the current year is 17.1%. The Zacks Consensus Estimate for current-year earnings has improved 10.4% over the past 60 days. ENS presently sports a Zacks Rank #1.
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Free: See Our Top Stock And 4 Runners UpApplied Industrial Technologies, Inc. (AIT) : Free Stock Analysis Report
AZZ Inc. (AZZ) : Free Stock Analysis Report
Graham Corporation (GHM) : Free Stock Analysis Report
Enersys (ENS) : Free Stock Analysis Report
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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.
