The scenario for machinery stocks has improved this year with indicators pointing toward healthy operating conditions in the industry. Through November, total industrial production -- one of the leading economic indicators for the industrial stocks -- has increased 3.4% above its year-ago level. The figure is also at 106.4% of its 2012 average in November.

In November, manufacturing production rose 0.2% — its third consecutive monthly gain. The index for mining increased 2% driven by a gain of 3% in oil and gas extraction. The index for mining is up 9.4% from the year-earlier level. Capacity utilization for manufacturing advanced to 76.4% in November, its highest reading since May 2008. The operating rate for mines increased 1.5 percentage points to 84.5%.

Per the U.S. Census Bureau report, new orders for U.S. manufactured machinery increased 4.9% in the first 10 months of 2017. According to the Institute for Supply Management (“ISM”), its index of national factory activity slipped to a reading of 58.2 in November from 58.7 in October. Though the index has slipped in October, it continues to signal strengthening manufacturing conditions.

Notably, a reading above 50 indicates improved factory activity. The average PMI for 2017 is currently pegged at 57.4. The November PMI indicates growth for the 102nd consecutive month in the overall economy as well as the 15th straight month of growth in the manufacturing sector. Notably, the manufacturing sector accounts for about 12% of the U.S. economy.

The U.S. GDP expanded at 3.3% in the third quarter of 2017 — the fastest pace of growth in three years. Notably, it is the first time since 2014 that the U.S. economy has witnessed growth of 3% or more for two straight quarters. Per a report by the Commerce Department, consumer spending (about 70% of the economy), advanced 2.3% in the third quarter of 2017.

In November, the United States created 228,000 jobs while the unemployment rate was at 4.1%. Manufacturing added 31,000 jobs in the month, led by machinery which created 8,000 jobs. Since its recent low in November 2016, employment in the manufacturing industry has increased by 189,000.

Strong Construction Sector Remains a Pillar

The construction sector has demonstrated stability through 2017 and witnessed sustainable growth amid various challenges. It goes without saying that President Donald Trump was the biggest factor. Investors were expecting faster growth based on Trump’s assurance of significant tax cuts, higher infrastructure spending and lesser regulations.

So far, it has been a good year for the housing market and the trend is anticipated to continue in 2018, owing to improving the economy, modest wage growth, low unemployment levels, positive consumer confidence, a tight supply situation and escalating rent costs. Despite the repeated hikes of the Federal Reserve’s interest rates, optimism surrounding the housing market remains largely unaffected.

Further, there has been a recovery in the mining sector driven by improvement in commodity prices. Miners are resuming their capital investments which are translating to better order flows for mining machinery companies.

All these positive factors have helped the Zacks machinery-construction/mining industry to grow 59.8% so far this year, higher than the broader market’s (S&P 500) rally of 20.6%. Notably, investing in the industry might sound profitable right now, as it falls within the top 1% (3 out of 256 sectors) of the Zacks Industry Rank, which hints at further growth.

What Factors Will Help Sustain Growth?

Improvement in the mining sector bodes well for machinery stocks dabbling in the mining industry. The continuous advancements in technologies applied in agriculture and mining industries keep demand strong for farming and mining machinery. Construction machinery demand will remain strong in the years to come aided by population growth, urbanization, increased energy consumption as well as an expanding middle class. Further, increasing demand for global infrastructure, such as roads, housing, airports, and energy will help maintain growth.

We believe that implementation of Trump administration’s growth policies, especially the proposed $1 trillion spending on infrastructure improvement, will be a boon for industrial machinery stocks.

Keeping the positive momentum in mind, here are five construction stocks that have more than doubled the S&P 500 year to date and will continue to outperform in the coming months. With the help of our Zacks Stock Screener, we have shortlisted five machinery-construction and mining stocks that have outperformed the S&P 500’s corresponding return and carry a Zacks Rank #1 (Strong Buy) or 2 (Buy).

5 Market-Beating Machinery Stocks

Caterpillar Inc. (CAT - Free Report) — Up 61.5%

Caterpillar, the world’s largest construction and mining equipment manufacturer, has a Zacks Rank #1 and a long-term earnings growth rate of 10.33%. You can see the complete list of today’s Zacks #1 Rank stocks here.

The earnings estimates for the company have gone up 22% for 2017 and 15% for 2018, in the past 60 days. Caterpillar’s earnings are expected to increase 88.2% for the current year and 20.5% for the next. The company also has an impressive earnings surprise history, beating the Zacks Consensus Estimate in the trailing four quarters, delivering an average positive earnings surprise history of 53.06%.

H&E Equipment Services, Inc. (HEES - Free Report) — Up 70%

H&E Equipment Services is one of the largest integrated equipment services companies in the United States. The company is focused on heavy construction & industrial equipment.

It has a Zacks Rank #1 and a long-term estimates growth rate of 15.55%. The Zacks Consensus Estimate for its current-year earnings increased 44% in the last 60 days and rose 18% for next year. The Zacks Consensus Estimate for the current year reflects year-over-year growth of 53.33%.

Komatsu Ltd. (KMTUY - Free Report) — Up 54.6%

Komatsu engages in the development, manufacture, marketing, and sale of various industrial-use products and services globally.

Komatsu currently has a Zacks Rank #1 and a long term estimated growth rate of 16.2%. The Zacks Consensus Estimate for current-year earnings increased 14% in the last 60 days and has moved north 8% for next year. The Zacks Consensus Estimate for the current year reflects year-over-year growth of 42.34% and 27.85% for the next.

The Manitowoc Company Inc. (MTW - Free Report) — Up 67.5%

Manitowoc is a leading global manufacturer of cranes and lift solutions. The company has an impressive earnings surprise history as it has topped the Zacks Consensus Estimate in three of the trailing four quarters, with an average positive surprise of 139.1%. Further, its earnings estimates for 2017 and 2018 have been revised upward in the last 60 days. The Zacks Consensus Estimate for 2017 and 2018 reflects year-over-year growth of 89.61% and 437.69%, respectively.

Terex Corporation (TEX - Free Report) — Up 48.5%

Terex is a global equipment manufacturer catering to the construction, infrastructure, and surface mining industries. The Zacks Consensus Estimate for current-year earnings increased 11% in the last 60 days and rose 9% for next year. The company has trumped the Zacks Consensus Estimate in the trailing four quarters, delivering an average positive earnings surprise of 135.92%. The Zacks Consensus Estimate for 2017 reflects a year-over-year growth of 46.14% and an improvement of 74.42% for 2018.