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Industrial Production Up M/M in February: 5 Stocks to Buy

Industrial production in the United States moved into positive territory in February 2020, as revealed in the recently released data by the Federal Reserve. The metric has gained 0.6% month over month, while remained flat compared with the prior-year period.

The news is welcoming, especially when the U.S. markets are jittery due to the coronavirus (officially named COVID-19) outbreak. Notably, the pandemic is considered to have originated in Wuhan — a city in the Hubei Province of China — and has gradually spread worldwide.

Industries, including airline, entertainment and tourism, have been hit hard as several protective measures are being taken globally to combat the virus spread. However, makers of protective gear and medicines are likely to gain or stay immune to the impacts of the outbreak.

Notably, the S&P 500 has dropped 23.1% since mid-January, while the NYSE and NASDAQ have declined 28.4% and 20.8%, respectively. Also, the DOW Industrial index has declined 26.8% during the same timeframe.

Reasons for Rise in Industrial Production

The official report shows a 0.6% month-over-month gain in industrial production after a 0.5% decline recorded in January 2020 and a 0.4% fall in December 2019. The index gained mainly from 7.1% growth in the utilities sector — with the largest rise witnessed in natural gas and electric utilities.

In addition, the manufacturing sector gained 0.1% in the month, mainly driven by a rise in motor vehicles and parts. Transportation (miscellaneous) and aerospace equipment recorded the sharpest fall. Also, leather, apparel, tobacco products, food, beverage and others recorded gains, while petroleum and coal products, chemicals, textile, and product mills registered declines.

On the flip side, outputs from the mining sector decreased 1.5% from the previous month.

In February, capacity utilization for the manufacturing sector was unchanged from the previous month at 75%. The mining sector’s utilization rate expanded 2.3 percentage points (pp), while that for utilities increased 5.2 pp.

Moving Ahead

We believe that the impact of the virus outbreak on industrial production might be more visible in the data for March 2020 and ahead.

Many companies expect the outbreak to adversely impact their near-term results. Among them, Stanley Black & Decker, Inc. SWK believes that its revenue-generation abilities for March and April will suffer. Also, Donaldson Company, Inc. DCI lowered its projections for fiscal 2020 (ending July 2020), anticipating soft market conditions.

However, several measures to combat the impact of the virus outbreak and related economic slowdown (through emergency interest rate cut by the Federal Reserve) might shield the corporate world to some extent.

5 Stocks to Pick Now

We believe that multiple industrial stocks stand to benefit or tide over the tough times in the near term. Though fighting the pandemic remains a priority for the government; the focus on infrastructure development, any pro-growth policies and other measures might be beneficial for many corporates.

We have picked five industrial stocks that are likely to enhance your portfolio despite the prevailing uncertainties.

Graco Inc. GGG: The Minneapolis, MN-based company currently sports a Zacks Rank #1 (Strong Buy). Its shares have declined 13.3% so far in 2020. You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 60 days, the Zacks Consensus Estimate for its earnings has been raised 5.9% for 2020 and 5% for 2021. The company’s earnings are projected to grow 8% in the next five years.

Sharps Compliance Corp. SMED: The Texas-based company currently flaunts a Zacks Rank #1. Its shares have increased 25.1% year to date.

In the past 60 days, the Zacks Consensus Estimate for its earnings has been raised by 50% for fiscal 2020 (ending June 2020) and 9.1% for fiscal 2021 (ending June 2021). The company’s earnings are projected to grow 22.5% in the next five years.

Tennant Company TNC: The Minneapolis, MN-based company presently sports a Zacks Rank #1 and carries a VGM Score of B.

The company’s share price has decreased 22% year to date. In the past 60 days, the Zacks Consensus Estimate for its earnings has been raised 37.4% for 2020 and 27.1% for 2021. In the next five years, its earnings are predicted to grow 10%.

Regal Beloit Corporation RBC: The Beloit, WI-based company currently carries a Zacks Rank #2 (Buy). Its shares have declined 19.7% so far in 2020.

In the past 60 days, the Zacks Consensus Estimate for its earnings has been raised by 1.7% for 2020 and 2% for 2021. The company’s earnings are projected to grow 10% in the next five years.

Tetra Tech, Inc. TTEK: The Pasadena-based company currently carries a Zacks Rank #2.

The company’s share price has declined 14% year to date. Also, its earnings estimates have been revised up, reflecting positive sentiments for the stock. In the past 60 days, the Zacks Consensus Estimate for its earnings has been raised 1.4% for fiscal 2020 (ending September 2020) and increased 2.2% for fiscal 2021 (ending September 2021).

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Tetra Tech, Inc. (TTEK): Free Stock Analysis Report
 
Regal Beloit Corporation (RBC): Free Stock Analysis Report
 
Graco Inc. (GGG): Free Stock Analysis Report
 
Stanley Black & Decker, Inc. (SWK): Free Stock Analysis Report
 
Sharps Compliance Corp (SMED): Free Stock Analysis Report
 
Donaldson Company, Inc. (DCI): Free Stock Analysis Report
 
Tennant Company (TNC): Free Stock Analysis Report
 
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