Chicago, IL – March 31, 2025 – Today, Zacks Equity Research discusses Dover Corp. DOV, RBC Bearings Inc. RBC, Applied Industrial Technologies, Inc. AIT and DNOW Inc. DNOW.
Link: https://www.zacks.com/commentary/2436648/4-industrial-manufacturing-stocks-to-gain-despite-industry-headwinds
Despite expansion in manufacturing activities, slowdown in new orders and supply-chain issues amid tariff-related risks have marred the outlook of the Zacks Manufacturing – General Industrial industry. The shortage of skilled labor in the United States is another concern for the industry.
However, industry participants' focus on cost-control measures and investments in product development has allowed them to stay competitive in the market. Dover Corp., RBC Bearings Inc., Applied Industrial Technologies, Inc. and DNOW Inc. appear well-poised to stay afloat in challenging market conditions.
The Zacks Manufacturing – General Industrial industry comprises companies that produce a wide range of industrial equipment. Some industry players offer power transmission products, bearings, engineered fluid power components and systems, industrial rubber products, vapor-abrasive blasting equipment, vehicle-powered truck refrigeration systems, adhesive, gel coat equipment, flow-control components and linear motion components.
Industrial manufacturing companies also reconstruct and assemble pumps, valves, speed reducers and hydraulic motors. The companies provide services to original equipment manufacturing and maintenance, repair and overhaul customers. These end users belong to the mining, oil and gas, forest products, agriculture and food processing, fabricated metals, chemicals and petrochemicals, transportation and utilities industries.
Recovery in Manufacturing Activities & Order Decline: The manufacturing sector witnessed expansion in economic activities for the second consecutive month in February. Per the Institute for Supply Management report, the Manufacturing PMI (Purchasing Manager's Index) recorded 50.3% in February. A figure above 50% indicates an expansion in manufacturing activity. However, the metric reflected a decline from 50.9% recorded in January.
The New Orders Index returned to the contraction territory, registering 48.6% in February. Customers have been cautious on their spending amid the volatility in the markets based on the U.S. administration's tariff announcements. Reciprocal tariff announcements by trading partners have also stoked inflation fears, even as they have cooled down in recent months.
Rising Costs Hurt Margins: Industry participants have been encountering input cost inflation and other expenses, which have been denting profitability. Also, supply-chain issues amid tariff announcements might increase raw material and other logistics expenses. The latest ISM report's Supplier Deliveries Index reflects slower deliveries for the third straight month in February. The rise in expenses, along with a tough labor market, poses a threat to margins. That said, companies have been focused on cost management initiatives to mitigate cost-related challenges. These include streamlining operational structures, optimizing supply networks and implementing effective pricing policies.
Investments in Product Development & Innovation: Constant focus on innovation by industry players, product upgrades and the development of new products to stay competitive in the market will likely 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.
The Zacks Manufacturing – General Industrial industry, housed within the broader Zacks Industrial Products sector, currently carries a Zacks Industry Rank #131. This rank places it in the bottom 47% of 246 Zacks industries.
The group's Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bleak near-term prospects. 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.
Despite bleak near-term prospects, we will present a few stocks worth considering for your portfolio. But before that, it is worth taking a look at the industry's stock market performance and current valuation.
The Zacks Manufacturing – General Industrial industry has lagged the broader sector but outperformed the Zacks S&P 500 composite index over the past year.
Over this period, the industry and the sector have declined 6.7% and 7.6%, respectively, against the S&P 500 Index's growth of 9.3%.
On the basis of the forward 12-month Price-to-Earnings (P/E), which is a commonly used multiple for valuing manufacturing stocks, the industry is currently trading at 20.31X compared with the S&P 500's 20.92X. It is above the sector's P/E (F12M) ratio of 18.17X.
In the past five years, the industry has traded as high as 26.63X and as low as 15.78X, with the median being 21.21X.
RBC Bearings: Headquartered in Oxford, CT, RBC Bearings is a leading manufacturer and distributor of engineered bearings and precision components. The company stands to gain from strength in its Aerospace & Defense segment. Solid momentum in the commercial aerospace market, driven by strong growth in orders from the OEM (original equipment manufacturer) and the aftermarket verticals, is driving the segment (revenues up 15.5% year over year in the first nine months of fiscal 2025). The robust backlog level ($896.5 million, exiting third-quarter fiscal 2025), along with the company's strong execution on incremental orders in the commercial aerospace market, is expected to drive its performance.
The Zacks Rank #1 (Strong Buy) company reported better-than-expected results thrice in the trailing four quarters, the earnings surprise being 4.9% on average. RBC Bearings' earnings estimates have increased 1.3% to $9.83 per share for fiscal 2025 (ending March 2025) in the past 60 days. Shares of this company have gained 23% in the past year. You can see the complete list of today's Zacks #1 Rank stocks here.
DNOW: Headquartered in Houston, TX, this company is a producer and supplier of downstream energy and industrial products for chemical processing, petroleum refining, power generation, gas utilities and LNG terminals across the world. It is benefiting from steady demand in the upstream, midstream and energy markets in the United States. Also, growing popularity for its products in the industrial markets, along with investments in decarbonization and expanding opportunities in renewable natural gas, bodes well for the company.
This Zacks Rank #1 company reported better-than-expected results twice in the trailing four quarters, the earnings surprise being 30.4% on average. DNOW's earnings estimates have improved 10.3% to 86 cents per share for 2025 in the past 60 days. Shares of the company have gained 13.8% in the past year.
Dover: New York-based DOV is an industrial conglomerate producing a wide range of specialized industrial products and manufacturing equipment. Dover's bookings remain healthy across most of its segments. It recorded positive booking growth consecutively in the last four quarters. The company expects this trend to continue for the remainder of the year. It has been implementing restructuring programs to better align the costs and operations with current market conditions. DOV remains focused on investments in capacity expansions in high-growth businesses and productivity improvements across its portfolio.
The Zacks Rank #2 (Buy) company reported better-than-expected results in each of the trailing four quarters, the earnings surprise being 5.3% on average. Dover's earnings estimates have increased 1.3% to $9.46 per share for 2025 in the past 60 days. Shares of the company have gained 1.1% in the past year.
Applied Industrial Technologies: Based in Cleveland, OH, the company is a distributor of value-added industrial products, including engineered fluid power components, bearings, specialty flow-control solutions and power transmission products. It is poised to benefit from strength across the food and beverage, chemicals, pulp and paper, and technology end markets. Also, AIT's product development initiative, buyouts, strong balance sheet and shareholder-friendly policies raise its attractiveness. For fiscal 2025 (ending June 2025), Applied Industrial predicts year-over-year sales growth of 1-3%.
The Zacks Rank #2 company reported better-than-expected results in each of the last four quarters, the earnings surprise being 5.3% on average. In the past 60 days, the company's earnings estimates have increased 1.3% to $9.90 per share for fiscal 2025. It has gained 17.5% in the past year.
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Dover Corporation (DOV) : Free Stock Analysis Report
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DNOW Inc. (DNOW) : Free Stock Analysis Report
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