5 Stocks To Buy From Top-Ranked Industrial Products Sector

Weakness in the technology sector as well as fears over the outcome of U.S.-China trade war pulled down the major U.S. indexes on the first trading day of April, though some recovery was witnessed a day later. These burning issues might influence investors’ view of the U.S. equity universe in the days ahead, especially for the companies in the tech sector.

However, despite these near-term concerns, we believe that the country’s solid fundamentals and some recent policy changes will help in strengthening its prospects. The most impressive was the implementation of the Tax Cut and Jobs Act in December 2017. This measure will help improve liquidity of the corporates, enabling them to make additional investment in growth projects.

Also, accelerating growth of the global economy — from 3.2% in 2016 to 3.7% in 2017 and 3.9% projected for 2018 by the International Monetary Fund — will support the country’s prospects. This premier institution expects the country to advance 2.7% in 2018 and 2.5% in 2019, reflecting hike of 0.4% for 2018 and 0.6% for 2019 from its earlier forecasts.

Based on our in-house classifications, the U.S. equity stocks have been grouped under 16 broad sectors. Each sector is given a rank calculated on the basis of the average of Zacks Rank of all the companies within it.

The Zacks Sector Rank of 1 is placed at the top, with the first eight sectors placed in the top half and the other eight in the bottom half. Over the last 10 years, using a one-week rebalance, the top half beat the bottom half by a factor of more than two. (To learn more visit: Industrial Products is one of the 16 broad Zacks sectors. It currently occupies the first position in the Zacks sectors list. Also, it has maintained its first position on the Zacks Sector heatmap this week, this being the fifth consecutive week of favorable 1 or 2 position. A brief on the sector’s past performance and future growth projections is provided below.

In the past three years, the sector yielded a solid 20.1% return.

In 2018, the sector’s earnings are projected to grow 19.6% year over year on revenue expansion of 8.2%. Margins are likely to expand 0.99%. Earnings growth is forecasted higher than 18.7% recorded in 2017. In the next three to five years, earnings of the Industrial Products sector are projected to grow 10.7%.

Strengthening job market as well as improving conditions in the housing market and pro-growth policies of the government is conducive to the sector’s growth. Moreover, one of the most important economic indicators, industrial production is currently favoring the sector.

In February, industrial production grew 4.4% year over year, marking the highest increase on a year-over-year basis since March 2011. Mining sector expanded 9.7%, utilities 10.5% and manufacturing 2.5%. Also, ISM Purchasing Managers’ Index or manufacturing index for March reflects expanding economic activities in the manufacturing sector — the key highlights being growing new orders, production activities, employment, new export orders and inventories.

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5 Suitable Investment Picks in the Sector

Industrial Products sector comprises 26 sub-industries. Of these, roughly 77% are in the top half of the total 265 Zacks industries. Industries in the top half is believed to have higher chances of beating the bottom half. (To learn more visit: Zacks Investment Research

Written By: Zacks Investment Research