5 Industrial Stocks Set For A Beat This Earnings Season

The Industrial Products sector is anticipated to see a lackluster earnings season, thanks to the prevalent slowdown in the manufacturing sector. The sector has been displaying contraction for the past five months, mainly due to the protracted U.S.-China trade war and waning global demand.

Per the Institute for Supply Management’s latest report, the U.S Purchasing Managers’ Index (PMI) was 47.2% in December — the lowest PMI reading since 46.3% in June 2009 — the last month of the Great Recession. This follows a reading of 48.1% in November and 48.3% in October.

Notably, a reading above 50 denotes expansion in the manufacturing sector and below 50 indicates contractions. The PMI remained below 50 for five consecutive months, averaging 47.9% during October-December 2019. This is expected to have weighed on the Industrial Products sector’s fourth-quarter performance.

The New Orders Index registered 46.8% in December, marking the lowest reading since 46% in April 2009. During the October-December period, the index averaged 47.7%.

Production Index came in at 43.2% in December — the index’s worst performance since April 2009 — when it stood at 36.7%. In the final quarter of 2019, this index averaged 46.2%.

The Employment Index registered 45.1% in December — the index’s lowest reading since 44.6% in January 2016. The index’s average in the last three months of 2019 stood at 46.5%. Notably, the new orders, production and employment indices all shrunk for the fifth consecutive month in December.

Given that steel is primary raw material, every company involved in manufacturing has borne the brunt of higher steel prices, thanks to tariffs.
This trend is anticipated to have continued in the fourth quarter as well, consequently trickling down to the sector’s bottom line. Nevertheless, the manufacturing companies are striving to sustain their margins through pricing actions and cost control, increasing productivity and eliminating waste.

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