Orders for U.S.-made factory orders rose in May for the third consecutive month as inflation continued to ease. This, at the same time, highlights the resilience of the U.S. manufacturing sector amid continuing price pressures.
The three straight monthly gains also indicate a positive outlook for the manufacturing sector, which has been taking a beating owing to the Fed’s interest rate hike policy that saw demand and orders slowing down. However, the sector appears to be finally rebounding from its earlier lows.
Durable Goods Orders Rise Again
The Census Bureau said on Jun 27 that new orders for goods made in U.S. factories jumped a solid $4.9 billion or 1.7% in May, reaching $288.2 billion and beating economists’ forecast of a decline of 1%. This follows a 1.2% rise in factory orders in April.
Excluding transportation, new orders rose 0.6% in May, while excluding defense, orders jumped a solid 3%.
Transportation equipment, which has been playing a key role in driving orders for factory goods, saw a rise of $3.9 billion or 3.9% to $102.6 in the last month.
Orders for core capital goods increased 0.7% in May. Orders for electrical equipment and appliances and components also rose 1.7% after declining in April. Besides, bookings for computers and electronic goods climbed 0.3%, while machinery jumped 1%.
Shipment of core capital goods advanced 0.2% in May after recording a 0.4% rise in April. Shipments of core capital goods are considered an important input in the calculation of equipment spending within the GDP measurement.
The manufacturing sector accounts for 11.3% of the U.S. economy. The sector has been suffering for a long period, but things finally seem to be rebounding, with orders on the rise through the second quarter.
The Fed has increased interest rates by 500 basis points since March 2022 and has indicated two more hikes of 25 basis points each by the end of this year.
However, both consumer price and producer price inflation have been showing signs of easing over the past couple of months, which prompted the Fed to keep interest rates unaltered in its June meeting.
The rebound is slow but the good sign is that orders and production are on the rise. Earlier this month, the Fed said that manufacturing output rose 0.1% in May, while it rose 0.9% in April.
Our Choices
Given this scenario, it will be prudent to invest in stocks with a favorable Zacks Rank that are poised to gain from solid factory orders. We narrowed down our search to four such stocks. Each of these stocks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Hubbell Incorporated HUBB is engaged in the design, manufacture and sale of electrical and electronic products to commercial, industrial, utility and telecommunications markets. HUBB’s products include plugs, receptacles, connectors, lighting fixtures, high voltage test and measurement equipment, and voice and data signal processing components.
Hubbell Incorporated’s expected earnings growth for the current year is 30%. The Zacks Consensus Estimate for current-year earnings has improved 5.8% over the last 60 days. HUBB currently sports a Zacks Rank #1.
A. O. Smith Corporation AOS is one of the leading manufacturers of commercial and residential water heating equipment, and water treatment products of the world. AOS specializes in offering innovative, and energy-efficient solutions and products, which are developed and sold on a global platform.
A. O. Smith’s expected earnings growth for the current year is 10.5%. The Zacks Consensus Estimate for current-year earnings has improved 2.1% over the last 60 days. AOS currently has a Zacks Rank #2.
Applied Industrial Technologies, Inc. AIT 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 30.4%. The Zacks Consensus Estimate for current-year earnings has improved 2.3% over the past 60 days. AIT currently has a Zacks Rank #2.
Graco Inc. GGG engages in designing, manufacturing and marketing equipment and systems used to measure, move, control, spray and dispense fluid as well as powder materials. The products offered by GGG are produced in the United States, Italy, the U.K., Belgium, Switzerland, China and Romania.
Graco’s expected earnings growth for the current year is 16.4%. The Zacks Consensus Estimate for current-year earnings has improved 6.3% over the past 60 days. GGG currently has a Zacks Rank #1.
EnerSys ENS engages in manufacturing, marketing and distribution of various industrial batteries. Additionally, ENS develops battery chargers and accessories, power equipment and outdoor cabinet enclosures. This apart, EnerSysprovides support services for clients.
EnerSys’ expected earnings growth for the current year is 28.1%. The Zacks Consensus Estimate for current-year earnings has improved 11.6% over the past 60 days. ENS at present sports a Zacks Rank #1.
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