Per the latest report from the Institute for Supply Management (ISM), its manufacturing index, for the month of September, increased for the 113th month on the trot.

Such an increase was achieved on the back of robust demand. Despite trade war remaining a concern for factories, the ISM stated that manufacturing activities have been improving steadily, which point toward a resilient and burgeoning economy. Under such circumstances, betting on stocks from the manufacturing sector seems prudent.

Robust Demand Propels Manufacturing Activity

The ISM Manufacturing Index increased to 59.8% last month, in line with the consensus estimate. Although the reading came in lower than 61.3% in August, a level above 50% implies that manufacturing is expanding.

The fall in the metric can, therefore, be deemed momentary as it stems from concerns related to tariffs. What should rather be noted is that industrial output remained strong in the month as business houses raised spending on machinery and equipment. Further, healthy domestic demand on the back of steadily rising wages, low tax rates and robust labor market conditions kept the sector afloat.

Other Factors Supporting Growth

The Production Index surged 63.9% last month, increasing 0.6 percentage points from August. Further, the Employment Index increased to 58.8% in September, registering a 0.3 percentage point increase from August. This was its highest reading since February.

Further, the New Export Orders Index gained 56% in September, an increase of 0.8 percentage points from August. This was the 31st consecutive month of gains for the metric. Finally, the New Orders Index fell to 61.8% last month.

Of the 18 manufacturing industries which were surveyed, 15 reported growth. Such industries include textile mills, miscellaneous manufacturing, plastics & rubber products, computer & electronic products, food, beverage & tobacco products, machinery, apparel, leather & allied products and paper products.

4 Hot Choices

The measure of economic activity in the manufacturing sector, the ISM Manufacturing Index remained strong in the month of September. The gains were powered by robust domestic demands, high wages and lower taxes. Manufacturing constitutes the major portion of the U.S. economy and a burgeoning sector implies healthy economic growth.

In this context, we have selected four manufacturing stocks that are expected to gain from these factors. These four stocks carry a Zacks Rank #1 (Strong Buy) or #2 (Buy). 

Atkore International Group Inc. (ATKR - Free Report) manufactures and distributes electrical raceway products.

The company is based out of Harvey, IL and sports a Zacks Rank #1. The expected earnings growth rate for the current year is 92.61%. The Zacks Consensus Estimate for the current year has improved 11.4% over the past 60 days.

Global Brass and Copper Holdings, Inc. (BRSS - Free Report) is a converter, fabricator, distributor and processor of copper and brass products primarily in North America.

The Zacks Rank #1 company is based out of Schaumburg, IL and has an expected earnings growth rate of 14.75% for the current year. The Zacks Consensus Estimate for the current year has improved 6.3% over the past 60 days.

Caterpillar Inc. (CAT - Free Report) manufactures and sells mining and construction equipment, natural gas engines, diesel-electric locomotives and other related products in the market.

This Deerfield, IL based company has a Zacks Rank #1. The company has an expected earnings growth rate of 69.27% for the current year. The Zacks Consensus Estimate for the current year has improved 0.6% over the past 60 days.

DXP Enterprises, Inc. (DXPE - Free Report) is a distributor of products and services in the United States, Canada, Mexico and Dubai that add value and provide cost-saving solutions to industrial customers. 

This Zacks Rank #1 company is based out of Houston, TX. The expected earnings growth rate for the current year is 74.42%. The Zacks Consensus Estimate for the current year has improved 41.5% over the past 60 days.