4 Stocks To Buy On Steady Manufacturing Expansion
Zacks Investment Research | May 03, 2016 10:18PM ET
The domestic manufacturing sector continued to expand in April, racking up its second straight month of gains. Despite a decline in the rate of growth, it is clear that manufacturing is on track for a steady recovery and may continue to gain in the months ahead.
A weaker dollar, higher crude prices and soft interest rates mean that conditions will continue to remain favorable for this sector. It makes good sense to select manufacturing stocks when you’re looking to make additions to your portfolio at this point.
Manufacturing Continues to Expand
The Institute for Supply Management (ISM) manufacturing index decreased from 51.8% in March to 50.8% in April, lower than the consensus estimate of 51.3%. However, it hovered above 50, the level which demarcates whether the sector is expanding or contracting. The reading in March had broken a chain of five consecutive months of contraction for the sector.
During this time, manufacturers were beset by a number of problems. These included a stronger dollar which had lowered the attractiveness of exports. Meanwhile, oil prices continued to decline leading to pressures on domestic energy companies. At the same time, the Fed made its first interest rate hike in nearly a decade.
Dollar Halts Surge, Boosts Exports
However, the tide seems to be turning for manufacturers. The dollar has declined following indications that the Fed is in no hurry to raise rates. As a result, exports have become more competitive. The ISM export index has moved up to its highest level since Nov 2014. Oil prices also gained in April due to a weaker dollar, fall in the U.S. rig count, rising gasoline consumption and supply disruptions.
These are probably the primary reasons responsible for the growth experienced by 11 of the 18 manufacturing sectors in April, according to the ISM survey. At the same time input costs have increased. The sector was spending more on raw materials in April compared with March levels. However, this has likely been factored in after a year of soft material prices and may have hit a more sustainable level.
Our Choices
Despite a slight decline in April, prospects for the manufacturing sector have improved over the last two months. Several factors have helped the sector expand and they will continue to support its expansion in the months ahead.
This is why it would be smart to pick manufacturing stocks with the sector on the verge of further growth. However, it may be difficult to pick winning stocks.
This is where our Zacks Investment Research
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.