Wall Street has been maintaining its dream run in 2024 after an impressive 2023. Year to date, the broad-market index — the S&P 500 — is up 8.3% after rallying 23.9% in 2023. Wall Street’s benchmark has posted several all-time highs on both an intraday and a closing basis so far this year. The latest was on Mar 1, as the index closed at 5,137.08 after hitting an intraday high of 5,140.33.
Of the 11 broad sectors of the S&P 500 Index, the best-performing sector was Industrials, which advanced 7.2% in February. This happened despite the fact that the manufacturing sector contracted for the 16th consecutive month in February, following a month of “unchanged” status and 28 months of growth prior to that.
The Institute of Supply Management (ISM) reported that the reading for U.S. manufacturing PMI (purchasing managers’ index) came in at 47.8 in February, compared with 49.1 the previous month. The consensus estimate was 49.5. Notably, any reading below 50 indicates a contraction in manufacturing activities.
Timothy R. Fiore, Chairman of the ISM Manufacturing Business Survey Committee, said “The U.S. manufacturing sector continued to contract with demand slowing, output easing and inputs remaining accommodative. Demand moderated with the New Orders Index back in contraction as seasonal headwinds were too strong to overcome. However, New Export Orders Index returned to expansion and Backlog of Orders Index improved.”
However, there are some positive developments too. While supply-chain disruptions persist, especially related to the availability of electronic components, the situation has improved, as evident from the ISM report’s Supplier Deliveries Index. The metric for February was 50.1, 1% higher than January’s metric of 49.1.
Supplier Deliveries is the only ISM Report on Business index that is inversed. A reading of above 50 indicates slower deliveries, which is typical as the economy improves and customer demand increases.
Fiore added “Demand is at the early stages of recovery, and production execution is relatively stable compared to January, as companies begin to prepare for expansion. Suppliers continue to have capacity but are showing signs of struggling, due in part to their raw material supply chains problems.”
At this stage, it will be prudent to invest in S&P 500 listed industrial stocks with a favorable Zacks Rank that have strong upside left for the near future.
Our Top Picks
We have narrowed our search to five industrial stocks with strong potential for 2024. These stocks have seen positive earnings estimate revisions in the last 30 days. Moreover, these companies are regular dividend payers. Finally, each of our picks carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The chart below shows the price performance of our five picks year to date.
Zacks Investment Research
Image Source: Zacks Investment Research
Parker-Hannifin Corp. PH is benefiting from higher demand from distributors and end users across the oil and gas, material handling, cars and light trucks, and farm and agriculture markets in the North American region within the Diversified Industrial segment.
Higher volume across all businesses, especially the commercial and military aftermarket businesses bolstered PH’s Aerospace Systems unit. Synergies from the Meggitt buyout are also aiding PH. Benefits from the Win strategy are driving PH’s margins.
Parker-Hannifin has an expected revenue and earnings growth rate of 4.5% and 10.4%, respectively, for the current year (ending June 2024). The Zacks Consensus Estimate for current-year earnings has improved 2.4% over the last 30 days. PH has a current dividend yield of 1.1%.
Eaton Corp. plc’s ETN ongoing research and development are allowing it to develop new products for providing efficient power management solutions. ETN will benefit from improving end-market conditions, increasing demand from the new AI data center and contributions from its organic assets.
ETN is expanding via acquisitions and its rising backlog shows demand for its products. ETN's strategy to manufacture in the zone of sale has helped it cut costs. Our model projects total revenues to improve in the 2024 to 2026 time period.
Eaton has an expected revenue and earnings growth rate of 7.5% and 12.3%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.1% over the last seven days. ETN has a current dividend yield of 1.2%.
Emerson Electric Co. EMR has been benefiting from healthy demand across end markets. Strong demand across the process and hybrid markets are driving EMR’s underlying sales. Strength in the measurement and analytical and final control businesses is aiding its Intelligent Devices’ unit.
The successive acquisitions of Afag and Flexim sparked optimism in the stock. EMR’s ability to generate strong cash flows supports its capital deployment strategy. Also, EMR’s efforts to reward its shareholders add to its appeal.
Emerson Electric has an expected revenue and earnings growth rate of 15.6% and 21.9%, respectively, for the current year (ending September 2024). The Zacks Consensus Estimate for current-year earnings has improved 0.4% over the last seven days. EMR has a current dividend yield of 2%.
Ingersoll Rand Inc. IR is set to gain from a healthy demand environment, solid product portfolio and innovation capabilities. Higher orders for compressors, and power tool and lifting are driving the growth of the Industrial Technologies & Services unit of IR. Benefits from acquired assets are aiding the Precision & Science Technologies segment. IR’s ability to generate strong cash flows supports its capital deployment strategy.
Ingersoll Rand has an expected revenue and earnings growth rate of 5.7% and 6.8%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1.9% over the last 30 days. IR has a current dividend yield of 0.1%.
W.W. Grainger Inc. GWW has been gaining from volume growth in the High Touch Solutions segment and customer growth in the Endless Assortment segment. Backed by a solid 2023 performance, GWW anticipates earnings per share of $38.00-$40.50 for 2024. The guidance indicates year-over-year growth of 39.3% at the mid-point.
GWW projects net sales between $17.2 billion and $17.7 billion for the year. Total daily sales growth is expected to be 4.3-7.3%, backed by the ongoing momentum in both segments. GWW’s initiatives to manage inventory effectively, as well as its investments in e-commerce and digital capabilities, will drive profitability. Moreover, gains from an improved product mix and price-control efforts are helping GWW’s growth.
W.W. Grainger has an expected revenue and earnings growth rate of 6.1% and 7%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 2.5% over the last 30 days. GWW has a current dividend yield of 0.8%.
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