5 Industrial Product Stocks to Buy on Solid July Data

Total industrial production rebounded in positive territory in July after two months of decline. Overall industrial production rose 1% in the previous month. Both manufacturing and mining output increased 0.5% while the index for utilities climbed 5.4% as very high temperatures raised demand for cooling. Within the manufacturing segment, production of motor vehicles and parts surged 5.2%, while other factory output were up 0.1%.

Strong Demand for Mining and Construction

The intensifying global focus on shifting from fossil fuels to zero emissions will require a large number of commodities, which, in turn, will support demand for mining equipment in the years to come. The U.S. government’s plans to increase investment in infrastructure construction, particularly in critical subsectors, such as transportation, water and sewerage, and telecommunications, should support demand in the coming years.

The industry participants are investing in digital initiatives like AI, cloud computing, advanced analytics and robotics. Digital transformation aids organizations in boosting productivity and increasing efficiency, reliability, and safety, thereby enriching customer satisfaction. With the pressing need to cut carbon emissions, companies worldwide are relying more on autonomous machinery.

Solid Demand for Farm Equipment

Growing demand for food to sustain the farm equipment industry and the need to replace aging equipment should spur demand. Farm size has been on the rise in the United States, which calls for more laborers. Given the escalation in labor costs every year, farmers are resorting to equipment to replace labor. Demand for agricultural equipment will continue to be supported by increased global demand for food, both from population growth and an increasing proportion of the population aspiring for better living standards.

Customers are increasingly relying on advanced technology, smart farming solutions and mechanization to run their operations. Thus, industry participants are enhancing investments in launching products equipped with advanced technologies and features to keep up with customers’ evolving demands.

Initiatives to advance precision agriculture technology are likely to be game-changers for the industry players, given its productivity-enhancing and sustainability benefits. Demand continues to grow for popular features, which include automatic guide machines in the field and equipment that plants seeds, and applies chemicals and fertilizers with exceptional accuracy.

Our Top Picks

We have narrowed our search to five industrial products stocks. These stocks have strong potential for the rest of 2023 with positive earnings estimate revisions in the last 30 days. Each of our picks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The chart below shows the price performance of our five picks in the past month.

Image Source: Zacks Investment Research

Caterpillar Inc. CAT has seen year-over-year revenue and earnings growth for nine straight quarters thanks to its cost-saving actions, strong end-market demand and pricing actions that offset the impact of supply-chain snarls and cost pressures. We expect the company’s adjusted earnings per share for 2023 to grow 19.5% and revenues to rise 7.6%.

Zacks Rank #1 Caterpillar has an expected revenue and earnings growth rate of 11.9% and 42%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 9.5% over the last 30 days.

Ingersoll Rand Inc. IR is set to gain from a healthy demand environment, solid product portfolio and innovation capabilities. Higher orders for compressors, and power tool and lifting are driving the growth of the Industrial Technologies & Services unit of IR. Benefits from acquired assets are aiding the Precision & Science Technologies segment.

Zacks Rank #2 Ingersoll Rand has an expected revenue and earnings growth rate of 14.5% and 16.5%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1.9% over the last 30 days.

Hubbell Inc. HUBB is engaged in the design, manufacture, and sale of electrical and electronic products to commercial, industrial, utility and telecommunications markets. HUBB’s products include plugs, receptacles, connectors, lighting fixtures, high voltage test and measurement equipment and voice and data signal processing components.

Zacks Rank #1 Hubbell has an expected revenue and earnings growth rate of 9.2% and 44.3%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 10.7% over the last 30 days.

Eaton Corp. plc ETN will benefit from improving end-market conditions and contribution from its organic assets which will assist it in retaining a strong market position. ETN is expanding via strategic acquisitions and its rising backlog shows strong demand for its products. ETN’s strategy to manufacture in the zone of sale has helped it to cut costs.

Zacks Rank #2 Eaton has an expected revenue and earnings growth rate of 11.3% and 16.3%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 11.8% over the last 30 days.

A. O. Smith Corp. AOS is one of the leading manufacturers of commercial and residential water heating equipment, and water treatment products of the world. AOS specializes in offering innovative, as well as energy-efficient solutions and products, which are developed and sold on a global platform.

Improving supply chains and robust demand for commercial and residential boilers and water treatment products in North America have benefitted AOS. Higher sales from India are supporting the Rest of the World unit’s performance amid weakness in China.

Zacks Rank #2 A.O. Smith has an expected revenue and earnings growth rate of 0.8% and 13.7%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 2% over the last 30 days.

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