5 Must-Buy Industrial Stocks With Solid Three-Month Gains

U.S. industrial production has shown signs of a turnaround in the past three months despite coronavirus-induced economic devastations. Industrial production plunged 12.5% in April thanks to lockdowns imposed by the government. However, in May, June and July, it recovered the lost ground to a large extent with gains of 1.4%, 5.7% and 3%, respectively.

The recovery of industrial production was primarily facilitated by the manufacturing industry's strong showing in the last two months. Meanwhile, in the past three months, the industrial sector, one of the 11 broad sectors of the S&P 500 Index, advanced more than 20% while the benchmark itself gained only 16.1%.

During this period, the Industrial Select Sector SPDR (XLI) rallied 21.9%, just after the Technology Select Sector SPDR (XLK) and the Consumer Discretionary Select Sector SPDR (XLY) that gained 23.3% and 22.4%, respectively.

Here we have selected five stocks from the industrial sector with a favorable Zacks Rank that have popped more than 40% in the past three months.

h3 Encouraging U.S. Manufacturing Data/h3

On Aug 3, the Institute for Supply Management (ISM) reported that the U.S. manufacturing purchasing managers' index (PMI) for July was 54.2, its highest reading since March 2019. The consensus estimate was 53.5 for July while June's PMI was 52.6. Notably, any reading above 50 indicates expansion in manufacturing activities.

Moreover, July was the third consecutive month of improvement in manufacturing after the index had slipped to an 11-year low of 41.5 in April. The ISM manufacturing PMI for May was 43.1. This indicates that manufacturing activities expanded in the last two months. Furthermore, 13 of the 18 industries tracked by ISM expanded in July. Notably, the manufacturing sector accounts for 12% of U.S. GDP.

On Aug 3, the IHS Markit reported that its preliminary PMI for the U.S. manufacturing sector rose to 50.9 in July from 49.8 in June. On Aug 21, the IHS Markit reported that manufacturing PMI in August came in at 53.6, a 19-month high level. Like the ISM report, any reading above 50 in IHS Markit also indicates an expansion in manufacturing activities.

h3 Positive Developments/h3

In the United States, new COVID-19 cases seemed to stabilize in the last few days. A series of better-than-expected economic data over the period of April to August — although the economy saw levels of activities that were way below the pre-lockdown levels — bear testimony to the fundamental stability of the economy.

As the U.S. and major global economies reopen more of their economies, the industrial product sector should strengthen its position as export demand for high-tech manufacturing products of the country will likely increase.

Moreover, the FDA granted emergency authorization of convalescent plasma to treat hospitalized Covid-19 patients on Aug 23. Despite the lack of sufficient clinical trial data, the FDA believes that convalescent plasma may be effective in treating Covid-19 patients based on a comparative benefit-risk analysis.

h3 Our Top Picks/h3

We have narrowed down our search to five industrial stocks with strong growth potential that have witnessed robust earnings estimate revisions in the last 7 to 30 days. Each of our picks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see Zacks Investment Research

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Written By: Zacks Investment Research