Increased infrastructure spending, strong employment growth and rise in manufacturing and mining activity remained the major growth drivers of the Industrial Products sector’s performance in 2018. Further, robust construction spending in the United States, higher demand for state-of-the-art construction and engineering services, technology advancements, and entry of smarter products supported the sector’s performance in 2018 despite a strong dollar.
Upbeat Data Supports Optimism
Global manufacturing remains positive, while U.S. manufacturing lingers in expansion territory. Some fresh statistics released regarding manufacturing activities instill optimism for the sector. Per the Institute for Supply Management (“ISM”) latest report, Purchasing Managers’ Index (“PMI”) for November rose 59.3% — exhibiting strong growth in manufacturing for the 27th consecutive month. The upbeat performance continues to be led by strong production output and continued strength in new orders, signaling strong economic momentum.
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.
Also, the U.S Architecture Billings Index (ABI), an economic indicator that provides an approximately nine-to-12 month glimpse into the future of non-residential construction spending activity, was 50.4 in October. Any score more than 50 indicates billings growth and reflects a healthy business environment.
According to the ADP National Employment Report, private companies created 179,000 jobs in November. The manufacturing industry created 4,000 jobs, while the construction industry generated 10,000 jobs in the private sector.
In addition, industrial production — a measure of the level of output of manufacturing, mining and utilities sectors — rose 0.1% in November for its fifth consecutive monthly increase. The overall index is now reported to have advanced at an annual rate of 4.7% in the third quarter.
According to the Bureau of Economic Analysis, U.S. GDP improved at an annual rate of 3.5% in third-quarter 2018. An increase in consumer spending, inventory investment, government spending, and business investment offset decline in exports and housing investment.
What’s in Store for 2019?
The Industrial Products sector is poised to perform well in 2019, on the back of strong M&As, primarily led by continued business confidence and an increasing focus of U.S. firms to enhance their geographic presence and strengthen their product portfolios. In addition, the Tax Cuts and Job Act inducted in December 2017 is likely to lead to enhanced M&A activity in 2019 as manufacturers accrue cash and search for ways to invest. The sector’s performance is also backed by growth in U.S. GDP and continued improvement in end-use sectors like automotive, aerospace, construction and packaging.
However, material cost inflation due to the imposition of tariffs and rising borrowing costs might thwart the sector’s growth in the next year. More stringent immigration policies, which could limit labor availability, also pose a threat to the sector. Nevertheless, the resolution of the hostilities between the United States and China will act as a major tailwind for the sector, which has been one of the biggest casualties of this trade war.
Stocks to Sustain the Winning Streak
Now let us take a look at the stocks that are likely to continue with the bull run in 2019.
Here we pick five Industrial stocks that are expected to display impressive momentum with favorable price movement. These stocks have performed well over the last few quarters and are likely to carry on with their excellent performance. The stocks carry an impressive VGM Score of A or B and a Zacks Rank of #1 (Strong Buy) or 2 (Buy).
Our research shows that stocks with a VGM Score of A or B, when combined with a solid Zacks Rank of 1 or 2, offer the best investment opportunities. The chosen gems have also outperformed the S&P 500, year to date.
Based in Lake Forest, IL, W.W. Grainger, Inc. GWW is a leading North American distributor of material handling equipment, safety and security supplies, lighting and electrical products. The stock is a Zacks #2 Ranked player and has a VGM Score of A. For 2019, the consensus mark for earnings is pegged at $17.92, reflecting a 10% year-over-year improvement.
Shares of the stock have rallied 18% in a year’s time, outperforming its industry’s 3% growth.
Based in Omaha, NE, Lindsay Corporation LNN is a leading designer and manufacturer of self-propelled center pivot and lateral move irrigation systems.
For fiscal 2019, the Zacks Consensus Estimate for earnings is pinned at $3.01, translating into a 2.4% year-over-year rise. The company flaunts a VGM Score of B and has a Zacks Rank of 2. Shares of this company have gained 9% in a year’s time, outperforming its industry’s decline of 8%.
Based in Reading, PA, Enersys ENS engages in manufacturing, marketing and distribution of various industrial batteries, including motive power, reserve power, aerospace and defense applications.
This Zacks Rank #2 stock has a VGM Score of A. For fiscal 2019, the Zacks Consensus Estimate for earnings represents 10.5% year-over-year growth.
Shares of the company have gained 3% in the past year, as against its industry’s decline of 20%.
Based in Manchester, U.K., Luxfer Holdings PLC LXFR is a materials technology company which designs, manufactures, and supplies high-performance materials, components, and high-pressure gas-containment devices.The stock has a VGM Score of A and its fiscal 2019 Zacks Consensus Estimate for earnings depicts a 13.8% year-over-year rise.
Shares of this Zacks Rank #1 company have gained 17.5% in a year versus its industry’s decline of 15%.
Based in Camp Hill, PA, Harsco Corporation HSC provides industrial services and engineered products worldwide. The stock currently carries a Zacks Rank of 1 and has a VGM Score of B. For 2019, the consensus mark for earnings is pegged at $1.55, reflecting a 23% year-over-year improvement.
Shares of the company have climbed 12% in a year’s time, outperforming its industry’s growth of 5%.