5 Stocks to Buy on a Steady Rebound in Manufacturing Activity

The U.S. manufacturing sector is finally showing signs of recovery after months of struggle that saw demand slowing due to inflationary pressures and higher borrowing costs. However, with inflation finally showing signs of cooling, demand is rebounding.

The U.S. Census Bureau reported that orders for U.S. manufactured capital goods, made to last more than three years, rose 0.1% in May, higher than the consensus estimate of a decline of 0.1%.

Although the rise was lower than April's jump of 0.6%, the positive sign is that orders are growing steadily. Durable goods orders for items such as toasters to aircraft rose 0.1% in May after a downwardly revised 0.2% gain in April.

The report comes days after the Federal Reserve said that production at U.S. factories rose at a robust pace in May. According to the report, manufacturing output jumped 0.9% in May from a downwardly revised 0.4% decline in April. Year over year, production at U.S. factories increased 0.1% in May.

Inflation has been a major threat to the manufacturing sector. The consumer price index remained unchanged in May after increasing 0.3% in April. Year over year, CPI rose 3.3%, lower than the consensus estimate of a rise of 3.4%.

Although inflation remains higher than the Federal Reserve's 2% target, it has finally started easing after increasing in the first quarter.

Federal Reserve Chairman Jerome Powell said in his June post-FOMC meeting statement that the Fed sees only one rate cut this year, which is lower than the three projected in its March meeting.

However, even a minor 0.25% rate cut is being seen positively, especially considering that a large number of market participants had previously anticipated no rate cuts in 2024.

Moreover, the recent FOMC "dot plot" suggests a projected total reduction of 1% in interest rates by 2025. This outlook indicates that the Fed funds rate is expected to decrease to 4.1% by the end of 2025, which bodes well for the manufacturing sector and the broader economy.

Our Choices

Given this scenario, it would be ideal to invest in five industrial stocks such as Allegion plc ALLE, AptarGroup, Inc. ATR, EnerSys ENS, Helios Technologies, Inc. HLIO and Luxfer Holdings PLC LXFR. These stocks have a Zacks Rank #1 (Strong Buy) or 2 (Buy) and assure good returns.

Allegion plc is a leading global provider of security products and solutions for business and domestic purposes. ALLE offers an extensive portfolio of mechanical and electronic security products, including doors and door systems, electronic security products, biometric and mobile access control systems, locks, locksets, exit devices, portable locks, and workforce productivity systems and other accessories.

Allegion's expected earnings growth for the current year is 1.9%. The Zacks Consensus Estimate for current-year earnings has improved 0.7% over the past 60 days. ALLE currently has a Zacks Rank #2.

AptarGroup, Inc. is a global supplier of a broad range of innovative dispensing, sealing, and active packaging solutions for the beauty, personal care, home care, prescription drug, consumer health care, injectables, food and beverage markets. ATR's main products include dispensing pumps, closures, aerosol valves, and elastomeric primary packaging components.

AptarGroup's expected earnings growth for the current year is 12.1%. The Zacks Consensus Estimate for current-year earnings has improved 0.4% over the past 60 days. ATR presently has a Zacks Rank #2.

EnerSys engages in manufacturing, marketing and distribution of various industrial batteries. Additionally, ENS develops battery chargers and accessories, power equipment and outdoor cabinet enclosures. This apart, EnerSys provides support services for clients.

EnerSys' expected earnings growth for the current year is 4.7%. The Zacks Consensus Estimate for current-year earnings has improved 3.9% over the past 60 days. ENS presently carries a Zacks Rank #2.

Helios Technologies, Inc. is an industrial technology company. HLIO develops and manufactures hydraulic and electronic control solutions. Helios Technologies' operating subsidiaries include Sun Hydraulics, Enovation Controls and Faster Group.

Helios Technologies' expected earnings growth for the current year is 9%. The Zacks Consensus Estimate for next-year earnings has improved 5.4% over the past 60 days.  HLIO has a Zacks Rank #2.

Luxfer Holdings PLC is a materials technology company specializing in the design, manufacture and supply of high-performance materials, components and gas cylinders. LXFR has two divisions, Elektron and Gas Cylinders.

Luxfer Holdings PLC's expected earnings growth for the current year is 37.7%. The Zacks Consensus Estimate for current-year earnings has improved 13.5% over the past 60 days. LXFR currently carries a Zacks Rank #2.

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