U.S. industrial production rebounded sharply in July, indicating that the manufacturing sector is trying to recover steadily as inflation continues to cool. The sharp decline in inflation over the past year has raised hopes that the Fed could soon end its interest rate hike campaign, which will further boost production at U.S. factories.

Given this scenario, industrial stocks Applied Industrial Technologies, Inc. AIT, Hubbell Incorporated HUBB,Broadwind, Inc. BWEN, Graham Corporation GHM and Alamo Group Inc. ALG are expected to benefit in the near term.

Industrial Production Rebounds

Production at U.S. factories rebounded sharply in July, increasing 1% month over month after declining for two straight months, the Federal Reserve said on Aug 16. This was also way above the consensus estimate of a rise of 0.3%.

The rise in July was driven by a solid jump in the production of automobiles. Automobile production jumped a solid 5.2% in July.

Manufacturing output increased 0.5% in July on a month-over-month basis. Capacity utilization, which reflects the overall expansion and demand within the economy, rose an impressive 0.7%, reaching 79.3% from 78.6% in June.

Utilities production increased 5.4%, while mining output rose 0.5% in July.

The manufacturing sector is still struggling and contracted for the ninth straight month in July, with the Institute for Supply Management’s (ISM) manufacturing purchasing managers index (PMI) increasing to 46.4. A reading of anything below means contraction.

Higher prices of raw materials and higher borrowing costs have been hampering production at U.S. factories. The Fed has increased its benchmark interest rate by 525 basis points since March 2022 to the current range of 5.25-5.5%.

However, inflation has sharply declined over the past year from its peak of 9.1% in June 2022. Also, the consumer price index (CPI) and the producer price index (PPI) showed a modest rise of 0.2% in July. Investors are hopeful that the Fed could soon end its current monetary tightening policy.

The Fed also said in its July FOMC that it believes that the economy will have a softer landing than it was earlier believed. This has raised optimism among market participants. Lower interest rates will definitely boost production at U.S. factories, thus aiding the manufacturing sector.

Our Choices

Given this scenario, it would be ideal to invest in the five stocks we have picked below. All these stocks have a Zacks Rank #1 (Strong Buy) or 2 (Buy) and assure good returns.

Applied Industrial Technologies, Inc. is a distributor of value-added industrial products — including engineered fluid power components, bearings, specialty flow control solutions, power transmission products and miscellaneous industrial supplies. AIT’s products are mainly sold to original equipment manufacturers and maintenance, repair, and operations customers in Australia, North America, Singapore and New Zealand.

Applied Industrial Technologies’ expected earnings growth for the current year is 2.5%. The Zacks Consensus Estimate for current-year earnings has improved 1.9% over the past 60 days. AIT currently has a Zacks Rank #2.

Hubbell Incorporated 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.

Hubbell Incorporated’s expected earnings growth for the current year is 44.3%. The Zacks Consensus Estimate for current-year earnings has improved 10.9% over the past 60 days. HUBB at present sports a Zacks Rank #1.

Broadwind, Inc. is a precision manufacturer of structures, equipment & components for clean tech and other specialized applications. BWEN’s most significant presence is within the U.S. wind energy industry, although it has diversified into other industrial markets in order to improve capacity utilization and reduce exposure to uncertainty related to favorable governmental policies currently supporting the U.S. wind energy industry

Broadwind’s expected earnings growth for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 11.1% over the past 60 days. BWEN currently has a Zacks Rank #2.

Graham Corporation designs and builds vacuum and heat transfer equipment for process industries and energy markets worldwide. GHM’s products include steam jet ejector vacuum systems and liquid ring vacuum pumps, surface condensers, Heliflows, water heaters, and various types of heat exchangers.

Graham Corporation’s expected earnings growth for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 66.7% over the past 60 days. GHM currently sports a Zacks Rank #1.

Alamo Group Inc. is a leader in the design, manufacture, distribution and service of high-quality equipment for infrastructure maintenance, agriculture and other applications. ALG’s products include truck and tractor mounted mowing and other vegetation maintenance equipment, street sweepers, snow removal equipment, excavators, vacuum trucks, other industrial equipment, agricultural implements and related after-market parts and services.

Alamo Group’s expected earnings growth for the current year is 29.4%. The Zacks Consensus Estimate for current-year earnings has improved 1.1% over the past 60 days. ALG presently has a Zacks Rank #2.
Applied Industrial Technologies, Inc. (AIT): Free Stock Analysis Report

Alamo Group, Inc. (ALG): Free Stock Analysis Report

Graham Corporation (GHM): Free Stock Analysis Report

Broadwind Energy, Inc. (BWEN): Free Stock Analysis Report

Hubbell Inc (HUBB): Free Stock Analysis Report

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