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4 Industrial Stocks Poised to Surpass Earnings Estimates

The U.S. market has been exhibiting signs of improvement since the beginning of the year. Year to date, the country’s major stock indexes have yielded healthy returns, including 14.2% by the S&P 500, 24.5% by the Nasdaq Composite and roughly 11.8% by the NYSE Composite. Industrial Products, one of the 16 Zacks sector, recorded 19.4% growth during the same period.

We believe that the Trump government’s promised growth policies, especially the proposed $1 trillion spending on infrastructure improvement, has been one of the primary forces driving the rally. Other tailwinds are the strengthening housing and commercial construction markets as well as steady growth in new job additions. In September, the country’s unemployment rate fell 0.2% percentage points to 4.2%. Also, the country’s GDP grew at an annualized rate of 3% in the July-September quarter.

In addition, few economic indicators point toward healthy operating conditions in the industry. Industrial production — a measure of the level of output of manufacturing, mining and utilities sectors in a country — grew 1.6% year over year in September, 1.2% in August and 1.8% in July. New orders for U.S.-manufactured machinery increased 6.4% in the first eight months of 2017, primarily for the construction, mining and oil and gas field and industrial machinery. Also, rise of 2 percentage points in Purchasing Managers’ Index or manufacturing index in September is a positive indicator for the industry.

Per the Earnings Preview dated Oct 27, earnings for the quarter reflect year-over-year improvement. As of that date, roughly 272 of S&P 500 companies reported results for the July-September quarter, with nearly 75.7% beating earnings estimates and 66.2% surpassing revenue projections. Also, the index’s earnings have grown 8.7% year over year and revenues have increased 6.7%.

In the quarter, the market is anticipated to perform well, witnessing earnings and sales growth of 5.4% and 5.5%, respectively over the year-ago quarter. Industrial products stocks, accounting for 2% of the S&P 500’s total market capitalization, are likely to see earnings growth of 18% and sales growth of 4.2%.

Guide to Selecting the Right Stocks

For investors seeking exposure in the industrial products industry, it is advisable to choose stocks that have the combination of a favorable Zacks Rank of #1 (Strong Buy) or 2 (Buy) or 3 (Hold) and a positive Earnings ESP (the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate). The combination of the dual factors indicates high probability of stocks surprising estimates in the quarter.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Below we have listed four industrial products stocks, with the right combination of elements to post an earnings beat in the July-September quarter:

Terex Corporation (TEX): The company, with a $4.2 billion market capitalization, is a global equipment manufacturer catering to the construction, infrastructure, and surface mining industries.

The company currently carries a Zacks Rank #2 and has an Earnings ESP of +3.17%. You can see the complete list of today’s Zacks #1 Rank stocks here.

The stock is expecting returns of 5% on equity and 2.8% on capital. These prospects are supported by the company’s cost-saving and new product development initiatives. Dividend yield presently is 0.68%. Its earnings are predicted to grow 19.6% in the next three to five years.

Terex Corporation is slated to release third-quarter 2017 results on Nov 1 before the market opens.

The Manitowoc Company, Inc. (MTW): The company, with a $1.3 billion market capitalization, designs, manufactures, markets and supports a comprehensive line of crawler cranes, mobile telescopic cranes, tower cranes and boom trucks. Its major markets include commercial and residential construction, infrastructure, power & utilities, industrial, petrochemical and manufacturing.

The company, with a Zacks Rank #3 and has an Earnings ESP of +33.33%, seems a suitable pick for investors seeking exposure in this industry.

Manitowoc Company is slated to release third-quarter 2017 results on Nov 6 after the market closes.

Rockwell Automation Inc. (ROK): The company is a leading global provider of industrial automation power, control and information solutions. Its products are primarily used in the food and beverage, automotive, oil and gas, mining, home and personal care end markets. Currently, the company has a market capitalization of $24.2 billion.

The stock, with a Zacks Rank #2 and an Earnings ESP of +1.17. In addition, the stock’s earnings are projected to grow nearly 11.3% in the next three to five years. Return on equity is 40.7% and return on capital is 25.1%. Dividend yield is 1.61%.

Rockwell Automation will release its fourth-quarter fiscal 2017 (ended September 2017) results on Nov 8, before the market opens.

Kennametal Inc. (KMT): The company, with a $3.5 billion market capitalization, is a manufacturer, marketer and distributor of high-speed metal cutting tools, tooling systems and wear-resistant parts. Its products are used in the aerospace, automotive, machine tool and farm machinery industries, construction, coal mining, quarrying, and oil and gas exploration industries.

The industrial company is worth considering as it has a Zacks Rank #2 and an Earnings ESP of +1.76%. Also, the stock promises solid returns of 12.5% on equity and 7.3% on capital. Dividend yield currently is 1.86%. The company’s earnings are estimated to grow 8.3% in the next three to five years.

Kennametal is slated to release first-quarter fiscal 2018 results on Nov 2, before the market opens.

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