4 Stocks to Play as U.S. Manufacturing Remains Robust

The U.S. manufacturing sector has been growing by leaps and bounds of late. Industrial production for last month increased more than expected on the back of higher automobile and utilities production. Meanwhile, the ISM manufacturing index kept up its momentum and was buoyed by steady increases in new orders.

Looking at the regional metrics which track manufacturing activity, the Philly Fed index sprung back to life in September after falling unexpectedly in August. These metrics point toward the fact that the U.S. economy is going from strength to strength. This calls for investing in stocks of companies from the manufacturing sector.

Strengthening Manufacturing Activity

Per the latest report from the Federal Reserve Bank of Philadelphia on Sep 20, manufacturing activity in the region has exhibited a strong rebound in September. The metric has expanded at a faster pace of 22.9% in the current month than 11.9% in August.

When the index is above 0%, it indicates factory-sector growth. Further, such an increase also depicts that general business conditions in the region have been improving steadily. The surge in the metric was achieved on the back of a bump in the new orders index, which is at 21.4%. Also, the shipment index has gained about 3 percentage points to hit 19.6% in the month.

Per the latest data from the Institute for Supply Management, the manufacturing index increased for the 112th month on the trot. The index expanded by 3.2% from July to reach 61.3% in August. The metric surpassed the estimated 57.7% mark in the month as well as the 58.1% it had hit in the previous month.

Such an increase points toward a strengthening U.S. economy and was buoyed by an increase in new orders and production. While the new orders index surged to 65.1% in August, the production index was at 63.3%. Further, employment index touched 58.5% in the month — its highest level in six months. Finally, the supplier deliveries index reached 64.5% in August to hit its best level since 2004.

Industrial Production on Track for Best Annual Growth Since 2010

Industrial production, for the month of August, increased at a seasonally adjusted pace of 0.4%. This is marginally higher than the estimated level of 0.3%. Utilities output surged 1.2%, giving the overall output a major boost. High temperatures across America led to increased usage of electricity which in turn boosted production.

Meanwhile, the manufacturing output surged 0.2% buoyed by a 4% increase in motor vehicles and parts production. Further, automakers in America assembled vehicles at an annual rate of 11.5 million units last month. This was the biggest increase since April. Finally, mining output increased 0.7% in August.

4 Best Choices

Manufacturing activity is burgeoning across the United States. Such a claim can be backed by steadily improving levels of regional as well as national manufacturing indices in the country. The Philly Fed manufacturing index, in particular, improved considerably in the current month on the back of a bump in new orders. Further, industrial production is on track to register its best level since 2010.

In this context, we have selected four manufacturing stocks that are expected to gain from these factors. These four stocks carry a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Caterpillar Inc. CAT manufactures and sells mining and construction equipment, natural gas engines, diesel-electric locomotives and other related products in the market.

This Deerfield, IL based company has an expected earnings growth rate of 69.27% for the current year. The Zacks Consensus Estimate for the current year has improved 8.4% over the past 60 days.

Atkore International Group Inc. ATKR manufactures and distributes electrical raceway products.

The company is based out of Harvey, IL. The expected earnings growth rate for the current year is 91.90%. The Zacks Consensus Estimate for the current year has improved 11% over the past 60 days.

Global Brass and Copper Holdings, Inc. BRSS is a converter, fabricator, distributor and processor of copper and brass products primarily in North America.

The company is based out of Schaumburg, IL and has an expected earnings growth rate of 14.75% for the current year. The Zacks Consensus Estimate for the current year has improved 6.3% over the past 60 days.

Meritor, Inc. MTOR is a global automotive parts manufacturer and supplier.

The company is based out of Troy, MI. The expected earnings growth rate for the current year is 57.45%. The Zacks Consensus Estimate for the current year has improved 5.7% over the past 60 days.

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