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Apr 27, 2023

4 Solid Stocks to Buy on a Rebound in Industrial Production

Higher interest rates are impacting the manufacturing sector as orders are

Higher interest rates are impacting the manufacturing sector as orders are drying up. However, industrial production has started showing signs of a rebound. According to the latest data from the Fed, industrial production rose in April.

This comes as inflation in April showed signs of cooling, leading to expectations that the Fed may finally pause its interest rate hikes in the coming months. Given this scenario, industrial stocks like Caterpillar Inc. CAT, Graco Inc. GGG, Barnes Group Inc. B and Ingersoll Rand Inc. IR are expected to benefit in the near term.

The Fed said on May 16 that industrial production grew 0.5% in April after remaining unchanged over the past two months. Economists had forecast industrial production to rise 0.1%.

Manufacturing output jumped a solid 1% in April. The jump was driven by higher output of motor vehicles and parts. Factory output, excluding motor vehicles and parts, rose 0.4%, after declining 0.7% in March.

Motor vehicle production jumped a solid 9.3% in April, after shrinking 1.9% in March. The index for mining rose 0.6%.

Capacity utilization rose to 79.7% in April.

Manufacturing, which accounts for 11.3% of the U.S. economy, has been crippled by higher borrowing costs. The ISM manufacturing PMI improved to 47.1 in April, but the sector has been contracting over the past year.

This has seen a decline in demand for goods that are typically purchased on credit. Also, spending has been shifting toward services, which is hampering demand for goods.

However, the impressive April data comes as inflation has finally started showing signs of easing. The Consumer Price Index (CPI) increased 4.9% year over year in April compared with a 5% rise in March. This is the lowest annual rate for CPI in the past two years.

Also, the Producer Price Index (PPI) showed that wholesale prices increased just 0.2% month over month in April, after falling 0.4% in March. On a year-over-year basis, PPI increased 2.3% in April, down from a 2.7% increase in March. This is the lowest reading since January 2021.

The Fed increased interest rates by 25 basis points in May, taking its benchmark range of 5-5.25%. However, slowing inflation has raised hopes that the Fed might finally pause hiking interest rates, which could begin as early as June.

Given this scenario, it would be ideal to invest in the four stocks we have picked below. All 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.

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 27.2%. The Zacks Consensus Estimate for current-year earnings has improved 12.4% over the past 60 days. CAT presently sports a Zacks Rank #1.

Graco Inc. engages in designing, manufacturing and marketing equipment and systems used to measure, move, control, spray and dispense fluid as well as powder materials. The products offered by GGG are produced in the United States, Italy, the U.K., Belgium, Switzerland, China and Romania.

Graco's expected earnings growth for the current year is 16.4%. The Zacks Consensus Estimate for current-year earnings has improved 10.9% over the past 60 days. GGG currently sports a Zacks Rank #1.

Barnes Group Inc. is a global diversified manufacturer and provider of highly engineered products, innovative solutions and differentiated industrial technologies. Products and solutions offered by B include plastic injection molding technologies, robotic grippers, automation components, fine-blanked solutions, high-performance precision components and engineering solutions.

Barnes Group'sexpected earnings growth for the current year is 11.1%. The Zacks Consensus Estimate for current-year earnings has improved 2.3% over the past 60 days. At present, B carries a Zacks Rank #2.

Ingersoll Rand Inc. is a global industrial company with expertise in industrial and mission-critical flow creation technologies. IR came into existence when Gardner Denver Holdings, Inc. acquired the Industrial segment of Ingersoll-Rand plc in February 2020.

Ingersoll Rand's expected earnings growth for the current year is 13.1%. The Zacks Consensus Estimate for current-year earnings has improved 6% over the past 60 days. IR currently sports a Zacks Rank #1.

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Graco Inc. (GGG) : Free Stock Analysis Report

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