The Zacks Manufacturing-Tools & Related Products industry is poised for growth on the back of robust demand for machinery tools in the industrial and automotive industries. Increased usage of electrical devices these days should drive demand for manufacturing tools in the power market. With rapid urbanization and the associated investments in product development and upgrades, the industry is poised for growth in the near term.
Strength in end markets, along with the focus on expanding operations through strategic acquisitions, is expected to foster the industry participants’ growth. Stanley Black & Decker, Inc. SWK, Core & Main, Inc. CNM, Lincoln Electric Holdings LECO and Kennametal Inc. KMT are a few industry participants that can capitalize on these opportunities.
About the Industry
The Zacks Manufacturing-Tools & Related Products industry comprises companies that develop and distribute hand and mechanics tools, hydraulic tools, engineered fastening systems and heavy-lifting technology solutions. Arc-welding products, fume-extraction equipment, oxy-fuel cutting equipment, plasma cutters, healthcare solutions, electronic security solutions and other products are also produced by some tool-makers. The highly advanced tools are used in industrial, commercial, oil & gas, mining, automotive and other industries. The providers of electronic security solutions cater to commercial, retail, government, financial and healthcare markets. Regarding international operations, some industry players provide products and services to customers in North and South America, Japan, Europe, Canada, Asia and the Middle East.
Four Trends Shaping the Future of the Manufacturing Tools Industry
Strength Across End-Markets: The growing adoption of machine tools to manufacture parts and components in several end markets, including industrial, automotive and packaging, should fuel the industry's growth. With people relying more on electrical devices these days to carry out day-to-day tasks, the demand for manufacturing tools is likely to increase. Increased focus on improving the speed, efficiency and quality of production across the industries has been driving the demand for manufacturing tools. However, a slowdown in manufacturing activities has been a concern for the industry, of late. In December 2024, the Institute for Supply Management’s manufacturing index registered 49.3%, indicating a contraction in manufacturing activity for the nine consecutive months. Nevertheless, in December, the New Order Index expanded for two months in a row, registering 52.5%, an increase of 2.1 percentage points from November 2024. The uptick in new orders, in conjunction with the slowdown in inflation, augurs well for industry participants.
Investments in Product Development & Innovation: The industry participants’ constant focus on innovation, product upgrades and the development of new products to stay competitive in the market should drive growth. While this augurs well for the industry’s long-term growth, hefty investments in research and development often leave companies with highly leveraged balance sheets.
Acquisition-Based Growth Strategy: The industry participants bank on an acquisition-based growth strategy to expand their customer reach and product offerings. This helps them foray into new markets and solidify their competitive position. Exposure to various end markets helps tool manufacturing companies offset risks associated with a single market.
Zacks Industry Rank Indicates Solid Prospects
The Zacks Manufacturing-Tools & Related Products industry, housed within the broader Zacks Industrial Products sector, currently carries a Zacks Industry Rank #84. This rank places it in the top 34% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates strong prospects in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
We will present a few stocks from the industry that you may want to consider for your portfolio. But before that, it is worth taking a look at the industry’s shareholder returns and its current valuation first.
Industry Underperforms Sector & S&P 500
The Zacks Manufacturing-Tools & Related Products industry has underperformed the sector and the S&P 500 Composite in the past year.
Over this period, the industry has appreciated 3.1% compared with the sector and the S&P 500 index’s growth of 16.6% and 26.4%, respectively.
One-Year Price Performance
Industry's Current Valuation
On the basis of forward 12-month Price-to-Earnings (P/E), which is a commonly used multiple for valuing manufacturing tools and related product stocks, the industry is currently trading at 18.95X compared with the S&P 500’s 22.33X. It is also below the sector’s P/E (F12M) ratio of 19.65X.
Over the past five years, the industry has traded as high as 22.71X and as low as 11.65X, with a median of 18.62X, as the chart below shows:
Price-to-Earnings Ratio vs SP500
Price-to-Earnings Ratio vs Sector
Four Manufacturing Tool Stocks to Keep a Tab on
Core & Main: Based in Saint Louis, MO, CNM provides wastewater, water, storm drainage and fire protection products and services to private water companies, municipalities and professional contractors. The company's products and services are utilized in the maintenance, repair, replacement and construction of infrastructure for water, storm drainage, wastewater and fire protection systems. CNM is benefiting from increased demand for pipes, valves & fittings, and storm drainage products. The acquisitions of Green Equipment Company and GroGreen Solutions Georgia, LLC in September 2024 bode well for Core & Main.
The Zacks Consensus Estimate for this Zacks Rank #2 (Buy) company’s fiscal 2024 (ending January 2025) earnings has been revised upward 2.9% to $2.16 per share in the past 60 days. Its shares have gained 8% in the past month. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: CNM
Stanley Black: Headquartered in New Britain, CT, Stanley Black manufactures tools (power and hand tools) and related accessories and engineered fastening systems, among other items. The company is poised to gain from the global cost-reduction program, which is expected to aid its bottom line and drive margins. This Zacks Rank #3 (Hold) company’s commitment to rewarding shareholders through dividend payments adds to its appeal.
The Zacks Consensus Estimate for Stanley Black’s 2024 earnings has been revised upward by 0.5% in the past 60 days. The stock has gained 3.6% in the past month.
Price and Consensus: SWK
Lincoln Electric: Headquartered in Cleveland, OH, LECO is a full-line manufacturer and reseller of welding and cutting products. Lincoln Electric’s growth will be fueled by strategic acquisitions and the execution of its higher standard 2025 strategy. Product launches in the automation solutions market and investments in new technologies, like additives, are expected to bolster the company’s growth.
This Zacks Rank #3 company reported better-than-expected results in each of the last four quarters, the average earnings surprise being 5.4%. The Zacks Rank #3 stock has increased 2.5% in the past month.
Price and Consensus: LECO
Kennametal: Based in Latrobe, PA, Kennametal is a manufacturer, marketer and distributor of high-speed metal cutting tools, tooling systems and wear-resistant parts. Its products are marketed through several channels to the end users including manufacturers of machine tools, transportation vehicles and others. The company is benefiting from solid momentum in the Infrastructure segment, driven by strength in the aerospace & defense and energy end markets. Its investments in product development and manufacturing facilities also bode well.
This Zacks Rank #3 company’s earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters and missed the mark in one, the average earnings surprise being 11%.
Price and Consensus: KMT
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