A Manufacturing Surprise Could Be a Big Win for These 2 Companies
Amid inflation, soaring diesel prices, and a lackluster employment report, investors will take any good news about the state of the U.S. economy that they can. In late September, a bright spot emerged when the S&P Global U.S. Manufacturing PMI reached 57, its highest level in 52 months. The figure suggests that the domestic factory sector remains in expansion, although manufacturing activity has strengthened only modestly amid a broader pickup in business activity.
With demand for domestic manufactured goods remaining strong despite supply chain constraints and rising input costs, it may be time for investors to look to companies that could benefit from a recovery in the factory sector.
Emerson Electric Co. (NYSE: EMR) and Rockwell Automation Inc. (NYSE: ROK) are centrally positioned in domestic manufacturing, meaning that both companies stand to benefit from a stronger manufacturing PMI. They offer varying levels of direct exposure to manufacturing, and each comes with potential risks to consider.
Emerson Narrows Its Focus as AspenTech Integration Has Progressed
Emerson is an automation and industrial software provider. Rather than manufacturing products itself, it aids other manufacturers in automating their processes and improving performance and control over their operations.
What this means for investors is that Emerson is less directly tied to individual industry behavior and demand cycles, and more closely linked with a broader secular trend toward automation in manufacturing across the market.
Over the last 18 months or so, Emerson has worked to integrate AspenTech, the process automation services provider that it acquired for $7.2 billion in March 2025. Now that integration has progressed, AspenTech should be a margin-expanding component of Emerson's larger operational profile.
For Emerson's Q3 fiscal 2026, ended June 30, the benefits of AspenTech were already on full display. The company reported 6% year-over-year (YOY) growth in underlying sales and 7% growth in orders. Adjusted earnings per share (EPS) also improved YOY. Semiconductor and power demand have fueled significant growth in both areas, helping the company boost its full-year guidance even as it plans to return $2.2 billion to shareholders.
Recent years have seen a narrowing of Emerson's operational focus as the company has divested certain non-core parts of its business and leaned heavily into software and systems. So far this has paid off for the firm—and for investors, with EMR shares up about 23% year to date (YTD).
With the stock trading at more than 35x earnings, it's hardly the cheapest option available. Despite only modest upside potential forecast across Wall Street, analysts still support Emerson, with 14 Buy ratings compared to 10 total Hold and Sell ratings.
Rockwell's Moderate Performance Belies Its Operational Successes
Rockwell is a direct competitor to Emerson because of its similar focus on industrial automation technology. Its lineup of programmable logic controllers, motion control systems, and related software does stand out, however, because it caters to a different set of clients than Emerson. This has allowed both companies to find a profitable niche that could continue to expand if manufacturing keeps up its recovery.
Last quarter, Rockwell reported organic sales growth of 10% YOY that fueled adjusted EPS gains of more than 20% over the same period. Similarly to Emerson, margins are expanding thanks to major gains in the software portion of Rockwell's business.
Growth is not one-note, though, and Rockwell has been buoyed by gains across multiple areas of its operations. This has given management the confidence to raise full-year guidance for reported and organic sales growth, even as margins are expected to expand by 260 basis points.
ROK shares also trade at a premium, with a price-to-earnings (P/E) ratio of about 43. The company has not performed quite as well in terms of share price as Emerson, with the stock rising about 17% YTD. Analysts are also a bit more lukewarm on ROK shares, offering a Hold rating overall and just 3% in forecasted upside potential.
The Role of Automation Firms in Manufacturing
Investors might expect Emerson and Rockwell to see a boost from increased manufacturing activity across the country. However, this boost may not be as immediate as it would be for firms that conduct manufacturing operations directly.
Rather, Emerson and Rockwell could be secondary beneficiaries—as manufacturing companies increase their volumes in a supportive environment, they may increasingly turn to automation to improve efficiency and production. In these cases, Emerson and Rockwell benefit. This may make these companies appealing medium-to-long-term plays for investors bullish on the future of domestic manufacturing broadly.
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