Yahoo Finance 4 Stocks to Buy on Solid Rebound in Industrial Production
The U.S. manufacturing sector, which struggled for months owing to inflationary pressures and higher interest rates, is making a rebound. Production at U.S. factories increased in May although demand for goods remained soft.
The Federal Reserve said that manufacturing output jumped a solid 0.9% in May from a downwardly revised 0.4% drop in April, making up for the declines in the past two months.
May’s jump was triple the expectations of economists, who had forecast a rise of 0.3%. On a year-over-year basis, production at U.S. factories rose 0.1% in May. Also, capacity utilization for the industrial sector, which measures the extent to which firms are utilizing their resources, increased to 78.7% from 78.2% in April.
Manufacturing accounts for 10.4% of the economy but the sector has been hit hard by higher borrowing costs and softening demand. The Federal Reserve increased interest rates by 525 basis points since March 2022 to take its benchmark policy rate in the range of 5.25-5.5% to bring down 40-year-high inflation.
Inflation has declined sharply but remains above the Fed’s 2% target. Moreover, inflation rose in the first quarter after declining steadily in 2023, which further weighed on the manufacturing sector.
However, inflation finally showed signs of declining in April and May. The consumer price index (CPI) reading was unchanged in May on a month-over-month basis rising 0.3% in April. This was also the softest reading since July 2022.
On a year-over-year basis, CPI increased 3.3%, which came in slightly below analysts’ expectations of a rise of 3.4%.
Also, Federal Reserve Chairman Jerome Powell said in his post-FOMC statement that the central bank sees one rate cut in this year, which is substantially lower than the three projected in its March meeting.
However, even a single 25 basis point rate cut is good news given that several market participants had started pricing in no rate cuts in 2024. Moreover, the recent "dot plot" from the FOMC indicates an expected cumulative 1% reduction in interest rates by 2025.
As a result, the Fed funds rate is projected to reach 4.1% by the end of 2025, which is positive news for the manufacturing sector and the overall economy.
Our Choices
Given this scenario, it would be ideal to invest in four stocks from the manufacturing sector — Applied Industrial Technologies, Inc. AIT, Clear Secure, Inc. YOU, Luxfer Holdings PLC LXFR and AZZ Inc. AZZ — 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.
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 9.9%. The Zacks Consensus Estimate for current-year earnings has improved 1.4% over the past 60 days. AIT currently has a Zacks Rank #2.
Clear Secure, Inc. platform connects you to the cards in your wallet. YOU provides security by U.S. government regulators and is also certified as Qualified Anti-Terrorism Technology under the SAFETY Act.
Clear Secure’s expected earnings growth for the current year is 87.9%. The Zacks Consensus Estimate for current-year earnings has improved 32.9% over the past 60 days. YOU presently sports a Zacks Rank #1.
Luxfer Holdings PLC is a materials technology company specializing in the design, manufacture and supply of high-performance materials, components and gas cylinders. LXFR has two divisions, Elektron and Gas Cylinders.
Luxfer Holdings PLC’s expected earnings growth for the current year is 37.7%. The Zacks Consensus Estimate for current-year earnings has improved 13.5% over the past 60 days. LXFR currently carries a Zacks Rank #2.
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 9.5%. The Zacks Consensus Estimate for current-year earnings has improved 5.3% over the past 60 days. AZZ, presently, sports a Zacks Rank #1.
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Applied Industrial Technologies, Inc. (AIT) : Free Stock Analysis Report
AZZ Inc. (AZZ) : Free Stock Analysis Report
Luxfer Holdings PLC (LXFR) : Free Stock Analysis Report
CLEAR Secure, Inc. (YOU) : Free Stock Analysis Report
