4 Stocks to Buy as Manufacturing Activity Makes Steady Rebound

The manufacturing sector was one of the biggest sufferers over the past couple of years as inflation hit a 40-year high, which compelled the Federal Reserve to adopt an aggressive monetary tightening campaign. Higher interest rates slowed demand and the manufacturing sector started shrinking.

Although the crisis is far from over, manufacturing activity has steadily made a rebound for the last two months, thanks to cooling inflation and easing price pressures. The Institute for Supply Management (“ISM”) reported on Feb 1 that the manufacturing PMI came up with a reading of 49.1 in January, surpassing the consensus estimate of 47.6, and up from December’s downwardly revised reading of 47.1.

Although a reading below 50 indicates a contraction in the sector, the January reading shows that the manufacturing sector is steadily inching toward expansion mode.

Also, the index for new orders rose to 52.5 in January, recording the second straight month of gains and well above December’s reading of 47. The Production Index, which contracted in 10 of the last 14 months rose 0.5% to 50.4 in January from December’s seasonally adjusted reading of 49.9.

Inflation has declined sharply over the past year, which made the Federal Reserve leave its benchmark policy rate steady in the range of 5.25-5.50% for the fourth straight time in January.

Cooling inflation is once again driving demand, which is giving a boost to manufacturing activity. The Federal Reserve also clearly indicated that it would be ending its interest rate hike campaign soon and starting rate cuts.

Although Federal Reserve Chairman Jerome Powell said that it’s unlikely that the central bank will be ready for a rate cut in March, markets are pricing in at least three rate cuts of 25 basis points each in 2024.

Lower interest rates bode well for the broader economy as it will further boost demand for goods made in U.S. factories and drive manufacturing activity.

Our Choices

Given this scenario, it would be ideal to invest in four stocks such as AZZ Inc. AZZ, Eaton Corporation plc ETN, EnerSys ENS and Parker-Hannifin Corporation PH, which we have detailed below. These stocks have a Zacks Rank #1 (Strong Buy) or 2 (Buy) and assure good returns. You can see the complete list of today’s Zacks #1 Rank stocks here.

AZZ Inc. is a global provider of metal coating services, welding solutions, specialty electrical equipment and highly engineered services to the markets of power generation, transmission, distribution and industrial in protecting metal and electrical systems used to build and enhance the world’s infrastructure.

AZZ Inc.’s expected earnings growth for the current year is 23.6%. The Zacks Consensus Estimate for current-year earnings has improved 4.9% over the past 60 days. AZZ, at present, carries a Zacks Rank #2.

Eaton Corporation plc is a diversified power management company and a global technology leader in electrical components and systems. ETN sells products in more than 175 countries and has in excess of 85,000 employees.

Eaton Corporation’s expected earnings growth for the current year is 10.4%. The Zacks Consensus Estimate for current-year earnings has improved 1% over the past 60 days. ETN currently carries a Zacks Rank #2.

EnerSys engages in manufacturing, marketing and distribution of various industrial batteries. Additionally, ENS develops battery chargers and accessories, power equipment and outdoor cabinet enclosures. This apart, EnerSys provides support services to clients.

EnerSys’ expected earnings growth for the current year is 60.3%. The Zacks Consensus Estimate for current-year earnings has improved 11.9% over the past 60 days. ENS presently sports a Zacks Rank #1.

Parker-Hannifin Corporation is a global diversified manufacturer of motion & control technologies and systems. PH provides precision-engineered solutions for a wide variety of mobile, industrial and aerospace markets.

Parker-Hannifin Corporation’s expected earnings growth for the current year is 9.8%. The Zacks Consensus Estimate for current-year earnings has improved 2.1% over the past 60 days. PH presently has a Zacks Rank #2.

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