The U.S. manufacturing sector has been struggling for the past several months, but signs of a rebound in the near term are bright as inflation continues to cool and price pressures ease. This saw orders for U.S.-made factory goods rebounding in August.

The Commerce Department said on Aug 28 that orders for goods made to last more than three years increased in August, driven by machinery and other products. Also, business spending on equipment rebounded after facing initial challenges during the beginning of the third quarter.

Given this scenario, investing in stocks like Applied Industrial Technologies, Inc. AIT, Caterpillar Inc. CAT, Broadwind, Inc. BWEN, Graham Corporation GHM and Xerox Holdings Corporation XRX would be a wise idea.

Durable Goods Orders Climb

Orders for durable goods increased $0.5 billion or 0.2% in August to hit $284.7 billion after declining 5.6% in July. Economists had forecast a decline of 0.5%, the Commerce Department reported. On a year-over-year basis, orders rose 4.2% in August.

Excluding transportation, new orders jumped 0.4%. Although orders for civilian aircraft dropped, higher orders for machinery and other products drove orders in August. Orders for machinery rose a solid 0.5%. Orders for electrical equipment, appliances and components climbed 1.1%.

Also, orders for electronic goods increased 0.3%, while fabricated metal products gained 0.5%. However, orders for transportation equipment fell 0.2%, owing to a 15.9% decline in orders for civilian aircraft.

Shipments for durable goods rose $1.4 billion or 0.5% to hit $284.6 billion in August for the third straight month. The increase was led by a jump of $0.8 billion or 0.9% in shipments for transportation equipment.

The manufacturing sector currently accounts for 11.3% of the U.S. economy. Despite encountering challenges over an extended period, there are positive indicators of progress.

The Fed has increased interest rates by 525 basis points since March 2022 to take its benchmark rate to the range of 5.25-5.5%. However, it paused interest rate hikes in September on signs of easing inflation.

Inflation has sharply declined over the past 15 months from its peak of 9.1% in June 2022. Moreover, the Fed has hinted at another rate hike this year before it starts cutting rates in 2024.

Lower borrowing rates in the near term definitely bodes well for the manufacturing sector. Signs of recovery are already there and the sector is poised to gain in the coming days.

Our Choices

Given this scenario, it will be prudent to invest in stocks with a favorable Zacks Rank that are poised to gain from solid factory orders. We narrowed our search to five such stocks. Each of these stocks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy).

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 3.1%. The Zacks Consensus Estimate for current-year earnings has improved 1.1% over the past 60 days. AIT currently has a Zacks Rank #1.

Caterpillar Inc. is the largest global construction and mining equipment manufacturer. Given that it serves a gamut of sectors — infrastructure, construction, mining, oil & gas and transportation, CAT is considered a bellwether of the global economy. Caterpillar has more than 4 million products with an extensive dealer network of 165 dealers spanning 191 countries.

Caterpillar’s expected earnings growth for the current year is 43.4%. The Zacks Consensus Estimate for current-year earnings has improved 10.5% over the past 60 days. CAT currently carries a Zacks Rank #2.

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 162.5%. The Zacks Consensus Estimate for current-year earnings has improved 11.1% over the past 60 days. BWEN currently 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.

Xerox Holdings Corporation is a leader in the contractual print and document services market. XRX has developed one of the industry’s strongest portfolios of managed print service solutions and services. Xerox’s strategy is to use data-centric technologies to better help customers in their digital transformation journey, taking advantage of the changing market conditions.

Xerox’s expected earnings growth for the current year is 51.8%. The Zacks Consensus Estimate for current-year earnings has improved 3% over the past 60 days. XRX presently has a Zacks Rank #2.
Caterpillar Inc. (CAT): Free Stock Analysis Report

Xerox Holdings Corporation (XRX): Free Stock Analysis Report

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

Graham Corporation (GHM): Free Stock Analysis Report

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

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