U.S. Manufacturers To See A Strong Q1: 5 Best Buys

U.S. manufactures are expecting to witness a solid first quarter, as the sector is currently growing on the back of improving economic fundamentals. Consecutive upsurge in the major Purchasing Managers' Index (PMI) as well as greater number of jobs offered by manufacturing giants buoys further optimism.

Manufacturers Optimistic About Growth Prospects

Uptick in the key indices of the PMI in the latest Institute for Supply Management (“ISM”) report reveals that the manufacturing sector is poised for growth.

With the U.S. economy gaining momentum, manufacturers have become optimistic that the manufacturing sector in first-quarter 2018 will put up a stellar show.

The Conference Board Leading Economic Index (LEI) improved for the third successive month in January, giving clear signals of stepped up economic activity. Impressive jobs data, upbeat wage rates, a modest inflation and President Trump’s long-awaited $1.5-trillion infrastructure plan provide an impetus to the upside.

Additionally, economic growth of emerging nations, firmer commodity prices in overseas markets and an uplift in global business confidence on account of a stable political environment are expected to improve U.S. manufacturing activities.

Manufacturing Activity Strengthens

The latest ISM report reveals that the PMI was pegged at 60.8% in February, an upside of 1.7% from January. The figure also surpassed the uppermost level of expansion recorded since 2004. A higher than 50 reading of the February PMI index reading undoubtedly verified that scale of economic activities is booming in the U.S. manufacturing sector.

The manufacturing upturn is currently backed by growth in production activity, new orders and inventories, with struggling supply side conditions. The February data revealed that ISM’s New Orders Index and Production Index were both above 60%, signifying that production expansion persists amid demand-supply glut, and capacity and labor restraints.

Moreover, higher New Export Orders Index, Imports Index and Prices Index in February proves that the sector has witnessed modest growth from the previous month.

Further, from January through February the ISM’s Backlog of Orders Index and Inventories Index rallied 3.6 and 4.4 percentage points, respectively. The upside confirms that production requirements will likely remain robust near at hand.

Manufacturers on a Hiring Spree

In February, several companies increased head count in sync with the growing production. In the last month, ISM’s Employment Index was up 5.5 percentage points from January.

Also, per the latest employment report from the Bureau of Labor Statistics, since February 2017 nearly 222,000 jobs were added in the United States in the manufacturing sector. Notably, the manufacturing sector is providing higher employment than other sectors.

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Manufacturing jobs not only offers relatively higher wages but also creates multiplier effects within the economy, unlike other service sector jobs. Hence, a booming manufacturing sector is likely to boost the economy as a whole.

Additionally, lower U.S. corporate tax rates and Trump’s impetus to foster overall growth of the manufacturing sector would likely benefit the U.S. manufacturing behemoths moving ahead.

5 Stocks to Bet on

We believe that grabbing well-performing manufacturing stocks will be a rewarding investment strategy at the moment, as the sector is likely to perform better.

Below we have zeroed down five hot picks with a Zacks Rank # (Strong Buy) or 2 (Buy), and a Zacks Investment Research

Written By: Zacks Investment Research