4 Construction & Mining Equipment Stocks to Escape Industry Headwinds

In This Article:

The Zacks Manufacturing - Construction and Mining industry faces challenges due to the ongoing contraction in manufacturing activities and a decline in orders due to low customer spending. Elevated input costs pose concerns. However, signs of easing supply-chain issues offer some respite.

Increased infrastructure investment in the United States and demand from the mining sector, driven by the energy transition trend, are expected to buoy the industry. Caterpillar Inc. CAT, Komatsu KMTUY, Hitachi Construction Machinery HTCMY and Terex TEX are poised to benefit from these trends. Their emphasis on introducing technologically advanced products, productivity and efficiency enhancements will aid growth.


Industry Description

The Zacks Manufacturing - Construction and Mining industry comprises companies that manufacture and sell construction, mining and utility equipment. They support customers using machinery in the construction of commercial, institutional and residential buildings, and infrastructure projects. Their equipment is also utilized in underground mining, drilling, mineral processing and surface mining to extract and haul copper, iron ore, coal, oil sands, aggregates, gold, and other minerals and ores. Their products are varied, including loaders, pavers, dozers, excavators, concrete mixer trucks, crushing, pulverizing and screening equipment, tractors, and cranes. Industry participants support oil and gas, power generation, marine, rail and industrial applications through their reciprocating engines, generator sets, gas turbines and turbine-related services.

Trends Shaping the Future of the Manufacturing - Construction and Mining Industry

Sluggishness in Manufacturing Activity Is Concerning: Per the Federal Reserve’s last update, industrial production was flat in April 2024. Over the 12 months ended April 2024, industrial production has been down 0.4%. A similar pattern is evident in the Institute for Supply Management’s Manufacturing Index, which has languished in the contraction territory for 16 consecutive months till February 2024. In March, the Index saw a slight uptick to 50.3%, which marked an end to the prolonged contraction. However, this recovery was not sustained and the Index fell back into contraction territory again in April with a 49.2% reading. The trend in the New Orders Index has also been choppy, reflecting lower customer spending amid inflationary trends. A brief surge in January to 52.5% sparked optimism for a rebound but was short-lived as it slipped below the 50% mark in February. In March, the Index rose to 51.4% but was followed by another drop to 49.1% in April. The Index has not delivered consistent growth since the end of its 24-month expansion streak in May 2022. Companies continue to manage outputs cautiously amid ongoing weakness in orders. The industry has also been affected by supply-chain issues, although some improvement has been noted recently. Deliveries of suppliers to manufacturing organizations were marginally faster in April for the second consecutive month. As the situation returns to normalcy, diverse end-market demand will drive the industry’s growth.

Energy Transition Trend, Construction Spending to Aid the Industry: The intensifying global focus on shifting from fossil fuels to zero emissions will require a large number of commodities, which, in turn, will support mining equipment demand in the years to come. The U.S. government's plans to increase investment in infrastructure construction, particularly in critical subsectors, such as transportation, water and sewerage, and telecommunications, should support demand in the coming years.

Higher Pricing, Cost Cuts to Boost Margins: The industry is facing input cost inflation, and transport and logistic costs. Industry players are focusing on pricing actions and efforts to improve productivity and efficiency. They are constantly implementing cost-reduction actions, which are likely to help sustain margins in this scenario. The companies are focused on streamlining their operations and realigning around high-growth key markets or customer segments to enhance their performances.

Investments in Digital Initiatives Act as a Key Catalyst: Industry participants are investing in digital initiatives like AI, cloud computing, advanced analytics and robotics. Digital transformation aids organizations in boosting productivity and increasing efficiency, reliability and safety, thereby enriching customer satisfaction. With the pressing need to cut carbon emissions, companies worldwide are relying more on autonomous machinery. Thus, players in the industry are stepping up their research and technological capabilities to bring products equipped with the latest technology into the market.