Inflation pressures have been crippling industries and manufacturing appears to be one of the biggest sufferers. However, the manufacturing sector is still trying to put up a strong fight during these trying times. This has seen production making steady growth for the second consecutive month in August.

The sector is poised to make a turnaround as hopes of the Fed finally ending its monetary tightening campaign are high ahead of the Fed’s September FOMC. Given this scenario, industrial stocks like Hubbell Incorporated HUBB, Applied Industrial Technologies, Inc. AIT, Eaton Corporation plc ETN, Graham Corporation GHM and Flowserve Corporation FLS are expected to benefit in the near term.

Industrial Production, Capacity Utilization Inches Up

Production at U.S. factories increased 0.4% in August after increasing 1% in July. Manufacturing output increased 0.1% during the same period. Manufacturing output somewhat slowed in August as it was held back by a 5% decline in output for motor vehicles and parts. Otherwise, factory output rose 0.6%.

Capacity utilization increased to 79.7% in August, which came in line with its long-run average from 1972 to 2022.

The manufacturing sector continues to face challenges, contracting for the 10th consecutive month in August. The Institute for Supply Management’s  manufacturing purchasing managers index  saw a slight increase to 47.6 in August. However, any reading below 50 signifies a contraction in the sector.

Production at U.S. factories has been hindered by rising costs of raw materials and increased borrowing costs. The Federal Reserve has responded to these challenges by raising its benchmark interest rate by 525 basis points since March 2022 to take its benchmark rate to the range of 5.25% to 5.5%.

However, inflation has seen a significant decline over the past year from its peak of 9.1% in June 2022. The consumer price index rose 0.6% in August, while the producer price index  rose 0.7%.

However, a cooling job market and inflation make investors optimistic that the Federal Reserve might consider ending its current monetary tightening policy soon, with hopes that it might leave its interest rate unaltered in its September meeting.

Lower interest rates bode well for the manufacturing sector as it will help boost production at U.S. factories.

Our Choices

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

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 10.7% over the past 60 days. HUBB, at present, has a Zacks Rank #2.

Applied Industrial Technologies 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 3.1%. The Zacks Consensus Estimate for current-year earnings has improved 1.7% over the past 60 days. AIT currently has a Zacks Rank #2.

Eaton Corporation 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 92,000 employees.

Eaton Corporation’s expected earnings growth for the current year is 16.4%. The Zacks Consensus Estimate for current-year earnings has improved 3.9% over the past 60 days. ETN presently carries 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 400%. The Zacks Consensus Estimate for current-year earnings has improved 66.7% over the past 60 days. GHM presently sports a Zacks Rank #1.

Flowserve Corporation is a leading manufacturer and aftermarket service provider of comprehensive flow control systems globally. FLS develops and manufactures precision-engineered flow control equipment, such as pumps, valves and seals, for critical service applications that require high reliability. Flowserve uses its manufacturing platform to offer a broad array of aftermarket equipment services, such as installation, advanced diagnostics, repair and retrofitting.

Flowserve’s expected earnings growth for the current year is 79.1%. The Zacks Consensus Estimate for current-year earnings has improved 9.4% over the past 60 days. FLS currently sports a Zacks Rank #1.
Eaton Corporation, PLC (ETN): Free Stock Analysis Report

Flowserve Corporation (FLS): Free Stock Analysis Report

Applied Industrial Technologies, Inc. (AIT): Free Stock Analysis Report

Graham Corporation (GHM): Free Stock Analysis Report

Hubbell Inc (HUBB): Free Stock Analysis Report

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