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5 Industrial Stocks to Buy as Output Hits Fastest Pace in 3 Years


Even a cursory glance at the bulk of the data released recently suggests that the economy has recovered from the chill experienced at the beginning of the year. Fears of a slowdown following a weak GDP reading for the first quarter were diminished further by unexpectedly optimistic industrial production numbers released on Tuesday.

Though gains were led by the automotive sector, improvements were experienced across all product categories. Optimism generated by a strong labor market, housing growth and gains for online retailers is now being bolstered by manufacturing, which makes this a good time to invest in such stocks.

April’s Growth Sets Blistering Pace

In April, industrial production increased at 1%, easily surpassing the estimated level of 0.4%. The increase experienced in March was revised downward from 0.5% to 0.4%. But not only did industrial production increase at its fastest pace since Feb 2014, April’s gains also mark the third consecutive month of expansions. The year over year increase amounts to 2.2%.

Last month’s gains were led by the automotive sector. Production of automobiles staged a rebound, increasing by 5% after suffering a decline of 3.6% in March. However, the automotive sector weakened in April and only 1.43 million vehicles were sold, which represents a yearly decline of 4.7%. But what is heartening is the fact that even excluding the auto sector, manufacturing has gained 0.7% over the month of April.

This is why it is likely that gains for manufacturers of items such as beverages, food, electronics, and tobacco products will endure and repeat themselves going forward. Additionally, mining output increased by 1.2%, boosted by gains made by coal mining and support functions. Utilities also posted an increase of 0.7%, following a rise in demand for air-conditioning, and subsequently power, following unseasonably warm weather.

Improving Economy to Power Future Gains

The recent uptick in industrial production depicts a significant recovery for the sector after two years of stagnation. In the two preceding years, a burgeoning dollar and the dismal global economic situation had raised the cost of U.S. goods abroad.

However, the stabilization of the dollar and a pickup in foreign demand has come as a welcome boost to factories across the U.S. According to a section of economists, the second quarter rebound in factory activity is an extremely positive development. This is because consumers have largely refrained from spending up to now as can be borne out by the rise in the savings rate.

Despite this development, manufacturing has increased by 4.8% compared to the average increase over the first quarter. Taken together with strong and successive job gains, a rise in online sales and a record increase in existing home sales over the last quarter, industrial production data indicate that the economy is slated to witness better times over the second quarter.

Our Choices

Apart from a record increase over last month, industrial production also logged its third successive month of gains. A steady improvement in manufacturing is now evident, backed by evidence of all round economic expansion.

Picking stocks gaining from the increase in industrial production is a prudent option at this time. However, picking winning stocks may prove to be difficult.

This is where our VGM score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score.

Hyster-Yale Materials Handling, Inc. HY designs, engineers, manufactures, sells and services a comprehensive line of lift trucks, warehouse trucks, counterbalanced trucks, cargo, container handling trucks and aftermarket parts.

Hyster-Yale Materials Handling has a Zacks Rank #1 (Strong Buy) and a VGM Score of A. The company has expected earnings growth of 41.3% for the current year. Its earnings estimate for the current year has improved by 14.1% over the last 30 days.

Applied Industrial Technologies, Inc. AIT is a premium value-added industrial product distributor, to original equipment manufacturer (OEM) and Maintenance, repair, and operations (MRO) customers.

Applied Industrial Technologies has a Zacks Rank #1 and a VGM Score of B. The company has expected earnings growth of 12.6% for the current year. Its earnings estimate for the current year has improved by 8.3% over the last 60 days.

Unifi, Inc. UFI is one of the world's largest producers of textured polyester and nylon.

Unifi has a VGM Score of B. The forward price-to-earnings (P/E) ratio for the current financial year (F1) is 15.18, lower than the industry average of 19.71.Its earnings estimate for the current year has improved by 8.9% over the last 30 days. The stock has a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Harsco Corporation HSC is a services and engineered products company.

Harsco has a Zacks Rank #2 and a VGM Score of A. The company has expected earnings growth of 17.7% for the current year. Its earnings estimate for the current year has improved by 28.4% over the last 30 days.

NN, Inc. NNBR is an independent manufacturer and supplier of high quality, precision steel balls and rollers to both domestic and international anti-friction bearing manufacturers.

NN, Inc. has a Zacks Rank #2 and a VGM Score of A. The company has expected earnings growth of 27.1% for the current year. Its earnings estimate for the current year has improved by 7.8% over the last 30 days.

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