4 Industrial Stocks to Soar as Confidence on Economic Recovery Grows

The U.S. economy suffered turmoil following the Covid-19 outbreak in the first quarter of 2020. The country has witnessed a decline in GDP, weak domestic demand and supply, weakness in international trade and a rise in budget deficits.

In the adverse environment, corporate profits declined in various sectors including industrial products, oil and gas, transportation, construction and finance. Investor confidence was badly shaken, as evidenced by the 26% decline in the NYSE in the first quarter of the year. The S&P 500 and Nasdaq lost 20% and 14.2% respectively over the period.

To deal with the devastation associated with the pandemic, the Federal Reserve cut the interest rate to nearly 0% in March and recently announced that the interest rate will stay at 0-0.25% for the short term. Several packages have also been provided by the government. At the corporate level, changes in production and marketing processes, cost reductions and the adoption of digital business methods have become priorities. With these and several other measures, an economic recovery appears to be emerging.
Is there an economic recovery going on?
The confidence is high.

Several leading indicators point to a strengthening of the economy. Importantly, the country's GDP improved by 33.4% (annual rate) in the third quarter, according to the latest report by the Bureau of Economic Analysis. This compares to a 31.4% decline in the second quarter. The improvement reflects growth in exports, fixed investment in residential and non-residential real estate, spending on personal consumption, and investment in personal inventory.

The ongoing decline in the unemployment rate in the country also reflects that economic activity is on the way to recovery. Data released this month by the Bureau of Labor Statistics show that the unemployment rate was 6.7% in November, compared with 14.7% in April. Jobs have been created in several industries including transportation and storage, healthcare, manufacturing, and construction.

Activities in the real estate market have also improved. Housing starts (privately owned) in November reflected a 1.2% increase over the previous month. In particular, the month-on-month change was down 26.4% in April. The number of single-family homes rose by 0.4% in November compared with the previous month, compared with 22.8% in April.

It should be noted here that US stock indices gained strength after the first quarter of 2020, with the NYSE up 39.8%, the Nasdaq up 65.9% and the S&P 500 up 42.8%.

The International Monetary Fund expects US production to grow 2.6% in 2021, compared to a 4.7% decline in 2020.

According to our most recent Earning Trend report, the earnings outlook for 14 out of 16 Zacks Sectors in Q1 2021 has improved versus Q4 2020 year over year.

We are limiting our discussion here to the Zacks Industrial Products sector. For the first quarter of 2021, earnings growth of 11.1% is expected with a sales increase of 3.4%. In particular, the Sector's profits and sales are expected to decline 9.6% and 3%, respectively, in the fourth quarter of 2020.
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Industrial stocks are expected to benefit from the economic recovery
This sector seems rightly able to benefit from the strengthening of economic activity. Key indicators to support this assumption include industrial production and the ISM manufacturing index. US industrial production grew 0.4% month-on-month in November, while it declined 12.7% in April. The manufacturing PMI was 57.5% in November, well over 41.5% in April. An index above 50% indicates an expansion in manufacturing activity, while an index below 50% indicates a contraction.

We have selected four potential industrial winners that are likely to thrive as confidence in the economic recovery increases. The stocks selected have a Zacks Rank 2 (Buy), a VGM value of A or B with a momentum value of A or B, a market capitalization of more than $ 2 billion and year-to-date price changes of more than 5% .

The full list of today's Zacks # 1 Rank stocks can be found here.

Parker-Hannifin Corporation PH: Based in Cleveland, OH, the company specializes in the manufacture of motion and control technologies and systems. IT products and solutions are widely used in the aerospace, cellular and industrial sectors. Its market capitalization is currently $ 34.5 billion.

The company is well positioned to benefit from strengthening companies in a variety of markets including rail and power generation, life sciences and semiconductors. The focus on investing in growth opportunities will be the main driver in the coming quarters.

The stock currently has a VGM value of B and momentum value of B. Since the start of the year, the stock is up 30.9% versus Zacks Manufacturing - General Industrial Industry’s 8.6% growth. Earnings estimates have increased by 13.8% over the past 60 days for fiscal year 2021 (end of June 2021) and by 6.8% for fiscal year 2022 (end of June 2022).
ParkerHannifin Corporation Price and Consensus
ParkerHannifin Corporation Price and Consensus
ParkerHannifin Corporation Price Consensus Chart | ParkerHannifin Corporation quote
Dover Corporation DOV: The company manufactures a wide range of manufacturing equipment and industrial products. The offering is used in transportation, pump and process solutions, beverages, food service and various other end markets. The company is based in New York and has a market capitalization of $ 17.8 billion.

Improvements in defense and aerospace, heat exchangers, biopharmaceuticals, and labeling and coding should be beneficial. The rise in e-commerce business, focus on product development, and other such activities are also a boon.

The stock currently has a VGM value and a momentum value of B. Since the start of the year, the stock is up 7.3% versus Zacks Manufacturing - General Industrial Industry’s 8.6% gain. Over the past 60 days, the company's earnings estimates rose 0.4% for 2020 and 1.1% for 2021.
Dover Corporation Price and Consensus
Dover Corporation Price and Consensus
Dover Corporation Price Consensus Chart | Dover Corporation quote
MSM Industrial Direct Co. Inc. MSM: The company distributes maintenance, repair, operating and metalworking products. The company is based in Melville, NY and currently has a market capitalization of $ 4.8 billion.

Efforts to expand market reach through digital means and invest in other growth opportunities, as well as strengthening the janitorial and security products business, are good growth potential for the company. A solid customer base is also a blessing.

The stock currently has a VGM value of A while the Momentum value is B. Since the start of the year, the stock is up 9.3%, compared to the Zacks Industrial Services industry's 48.9% growth. Over the past 60 days, the company's earnings estimates for fiscal year 2021 (ending August 2021) have increased 4.3% and for fiscal year 2022 (ending August 2022) have increased 3.3%.
MSC Industrial Direct Company, Inc.
MSC Industrial Direct Company, Inc.
MSC Industrial Direct Company, Inc. Price Consensus Chart | MSC Industrial Direct Company, Inc. Offer
Franklin Electric Co., Inc. FELE: Based in Fort Wayne, IN, manufactures and sells fuel and water pumping systems. The products are primarily used in utility, telecommunications, water and wastewater and various other end markets. Its market capitalization is currently $ 3.2 billion.

Expertise in innovative fuel systems, solid product offerings, extensive geographic presence and employability are competitive advantages for the company. The focus on expanding the filtration, treatment and irrigation businesses will benefit from this.

The VGM value of the stock is A while the Momentum value is B. Since the start of the year, the stock is up 20.6% compared to the Zacks Manufacturing - Electronics industry's 18% growth. Over the past 60 days, the company's earnings estimates have increased 12.2% for 2020 and 9.5% for 2021.
Price and Consensus from Franklin Electric Co., Inc.
Price and Consensus from Franklin Electric Co., Inc.
Price Consensus Chart by Franklin Electric Co., Inc. Franklin Electric Co., Inc. Quote
Zack's top 10 stocks for 2021
In addition to the stocks discussed above, would you like to find out more about our top 10 tickers for the whole of 2021?

These 10 are carefully selected from over 4,000 companies that fall under the Zacks rank. They are our top buy and hold tips. Start your access to the new Zacks Top 10 stocks >>

Would you like the latest recommendations from Zacks Investment Research? Today you can download 7 Best Stocks for the next 30 days. Click here to get this free report

ParkerHannifin Corporation (PH): Free Stock Analysis Report

Dover Corporation (DOV): Free Stock Research Report

Franklin Electric Co., Inc. (FELE): Free Stock Analysis Report

MSC Industrial Direct Company, Inc. (MSM): Free Stock Analysis Report

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Zacks Investment Research
In this article
^ GSPC
+ 0.35%
PH
+ 0.02%
DOV
+ 0.31%
FELE
+ 1.20%

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