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5 Industrial Picks to Enrich Your Portfolio in Q1 Earnings

Zacks

Industrial production in Trump land has been experiencing a boom, of late, signifying growth in manufacturing, mining and construction spending. Remarkably, industrial yield in the United States registered the fourth straight quarter of growth in February.

Over the past few years, the industrial products sector has been impacted by factors like reduced investment in the energy sector, commodity price deflation, less favorable economic conditions in some developing and developed nations, and the Brexit referendum.

However, the sector is in a comeback trail since U.S. economic activity stepped up in 2017.

At this juncture, allocating your hard-earned money in selective industrial picks will bear fruit.

Trade War Subdued

I don’t expect there will be a trade war,” tweeted the Treasury Secretary Steven Mnuchin on Sunday, reinstating hopes that the Trump administration might soften its ongoing trade rigidities with Beijing.

Last Thursday, Trump had hinted at an escalation in its trade war with China, threatening that he might levy tariffs on another $100 billion worth products imported from China. However, Beijing’s aggressive response to “hit back forcefully” has possibly altered situations.

We believe that U.S. business confidence will likely gain strength if the trade turmoil between the two biggest economies cool down.

Manufacturing, Mining & Construction Activity Expands

The Purchasing Managers' Index touched 50.9% in March. Any reading higher than 50, verifies that economic activity is booming in the U.S. manufacturing sector. Manufacturing upturn is currently backed by growth in production activity, new orders and inventories, with struggling supply side conditions. Per March data, 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. Also, the Price Index for March was at 78.1%, up 3.9 percentage points from the previous month, striking the highest level since 2011.

Mining yield rallied 4.3% in February, up 12% year over year, marking the highest level ever. Rise in production in the mining market has been stemming from the upsurge in oil and gas extraction, coal mining and other associated supporting activities.

Aggregate U.S. construction spending was $1,273.1 billion this February, up 3% from the year-ago tally. Reduced corporate tax rates, increased infrastructure spending, favorable labor market scenario and upbeat consumer confidence are expected to boost construction spending in the United States.

Industrial Production Falls, Capacity Utilization Hits 3-Year High

In February, industrial production made a turnaround after a blink-and-miss act in January. The Fed’s board of governors stated that industrial production inched up 1.1% in February, as against the decline of 0.3% in the prior month. Industrial output recorded the highest growth in four months and improved at an annual rate of 4.4% last month.

Also, capacity utilization moved up 0.7% to 78.1% in February, touching record level since January 2015. Furthermore, with the recent economic data like the ISM Manufacturing Index remaining upbeat, it is likely that the U.S. economy will inflate its capacity steadily.

What’s in the Cards for the Sector in Q1?

Our latest Earnings Preview report (dated Apr 6, 2018) states that robust momentum witnessed in the prior earnings season will remain in the current reporting cycle as well. Overall earnings of the S&P 500 index is predicted to grow 16% year over year on 7.4% rise in revenues.

We note that the Industrial Products sector is currently placed at the top 6% out of the 16 Zacks sectors. The sector has also been outperforming the benchmark index, of late.

As of now, we estimate that earnings and revenues of all the Industrial stocks in the S&P 500 group to climb 23.9% and 12.3%, respectively, year over year.

Increased spending in residential housing and non-residential construction, entry of smarter products and Internet of Things (IoT), rise in new orders, sturdier production activity, heavier inventories and reduced corporate tax rates are anticipated to fuel the sector’s growth in the quarter to be reported.

Our Choices

Earnings ESP is our proprietary methodology for identifying stocks that have high chances of surprising with the next earnings announcement. It shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

You could further narrow down the list of choices by looking at stocks that have a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold).

You can see the complete list of today’s Zacks #1 Rank stocks here.

Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.

Here are five industrial products stocks that match the aforementioned criteria and thus, may outshine in the upcoming earnings season.

Global Brass and Copper Holdings, Inc. BRSS is a renowned fabricator, processor, value-added converter and distributor of specialized non-ferrous products.

The company pulled off a positive average earnings surprise of 8.38% in the last four quarters. Powered with the right combination of the two key ingredients — an Earnings ESP of +2.96% and a Zacks Rank of 1 — our proven model indicates a likely earnings beat for Global Brass and Copper Holdings in the to-be-reported quarter as well.

The company is expected to report first-quarter 2018 results on May 3.

Axon Enterprise, Inc. AAXN manufactures and sells conducted electrical weapons in the global forum.

The company delivered a positive average earnings surprise of 188.33% in the last four quarters. Powered with the right combination of the two key ingredients — an Earnings ESP of +12.50% and a Zacks Rank of 1 — our proven model indicates a likely earnings beat for Axon Enterprise in the first quarter as well.

The company is slated to report first-quarter 2018 results on May 8.

Graco Inc. GGG manufactures, designs and sells power and fluid materials globally.

The company delivered a positive average earnings surprise of 18.54% in the last four quarters. With the favorable combination of the two key ingredients — an Earnings ESP of +1.82% and a Zacks Rank of 2 — our proven model indicates a likely earnings beat for Graco in the quarter to be reported as well.

The company will report first-quarter 2018 results on Apr 25, after the market closes.

The Timken Company TKR manufactures, engineers and sells gearboxes, transmissions, bearings, chains, belts, industrial clutches, couplings and related products.

The company came up with a positive average earnings surprise of 9.61% in the last four quarters. Powered with the right combination of the two key ingredients — an Earnings ESP of +4.03% and a Zacks Rank of 2 — our proven model indicates a likely earnings beat for Timken in the first quarter.

The company is scheduled to release first-quarter 2018 figures on Apr 25.

Rockwell Automation, Inc. ROK provides information and industrial automation solutions.

The company delivered a positive average earnings surprise of 7.07% in the last four quarters. Powered with the right combination of the two key ingredients — an Earnings ESP of +0.42% and a Zacks Rank of 2 — our proven model indicates a likely earnings beat for Rockwell in the to-be-reported quarter.

The company is set to report second-quarter fiscal 2018 (ended March 2018) numbers on Apr 25, before market opens.

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