4 Industrial Stocks Set For A Strong Finish In 2018

Zacks Investment Research | Dec 26, 2018 08:57PM ET

The manufacturing sector has held its ground this year despite impact from tariff and supply chain challenges. This momentum is likely to continue next year as well, supported by the spate of positive data coming in from the sector. Improvement in its end markets like residential and non-residential construction; mining driven by ongoing recovery in the commodities, oil and gas industry; and economic growth will continue to drive the sector.

Strong Manufacturing Data Despite Tariff Woes

The announcement of the tariffs on steel imports into the United States earlier this year was a big blow to the manufacturing sector overall. Given that steel is a primary raw material, every manufacturing company bore the brunt of rising steel prices owing to the tariffs. Though this was mitigated to some extent with price increases, it might not always be feasible to pass on the price increase to customers. Further, the industry has been plagued with shortage of skilled laborers, higher wage costs and flaring-up transportation expenses.

Despite these challenges, the manufacturing sector witnessed strong production output and continued strength in new orders this year. Per the Institute for Supply Management’s (“ISM”).latest report, Purchasing Managers’ Index (“PMI”) for November rose 59.3% — maintaining growth in manufacturing for the 27th consecutive months. Of the 18 manufacturing industries, 13 reported growth in November.

The PMI has averaged 59.2% over the last 12 months ranging from a low of 57.3% in April 2018 to a high of 61.3% in August 2018. Notably, a reading above 50% indicates expansion in manufacturing economy. The PMI reading of 59.3% for November corresponds to an increase of 4.9% in real gross domestic product (GDP) on an annualized basis.

New Orders Index registered 62.1% in November, indicating growth in new orders for the 35th consecutive month. Production Index registered growth of 60.5% in November, indicating improvement in production for the 27th consecutive month. Employment continued to expand, supporting production growth. The employment index was pegged at 58.4% in November, maintaining growth for the 26th consecutive month.

Additionally, industrial production — a measure of the level of output of manufacturing, mining and utilities sectors — rose 0.6% in November. Manufacturing output remained flat while mining output rose 1.7% aided by gains in oil and gas extraction, coal mining, and support activities for mining.

Sector Position & Performance

All the machinery industries are broadly clubbed under the Zacks Zacks Investment Research

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Written By: Zacks Investment Research

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