The Zacks Manufacturing – General Industrial industry is poised for growth on the back of strength across prominent end markets and a surge in the e-commerce business. Efforts to digitalize business operations have been enhancing industry players' competitiveness. Investments in product development and focus on expanding operations through strategic acquisitions are expected to boost the industry’s growth.
However, persistent softness in the manufacturing sector has marred the outlook of the industry. Parker-Hannifin Corporation PH, Ingersoll Rand Inc. IR, Xylem Inc. XYL and Flowserve Corporation FLS are a few industry participants that are likely to capitalize on the prevalent opportunities.
About the Industry
The Zacks Manufacturing – General Industrial industry comprises companies that produce a wide range of industrial equipment. Some industry players offer power transmission products, bearings, engineered fluid power components and systems, industrial rubber products, vapor-abrasive blasting equipment, vehicle-powered truck refrigeration systems, adhesive, gel coat equipment, flow-control components, and linear motion components. Industrial manufacturing companies also reconstruct and assemble pumps, valves, speed reducers and hydraulic motors. The companies provide services to original equipment manufacturing and maintenance, repair and overhaul customers. These end users belong to the mining, oil and gas, forest products, agriculture and food processing, fabricated metals, chemicals and petrochemicals, transportation, and utilities industries.
4 Trends Shaping the Future of the Manufacturing General Industrial Industry
Persistent Weakness in the Manufacturing Sector: The industry has been grappling with persistent softness in the manufacturing sector. Per the Institute for Supply Management report, the Manufacturing PMI (Purchasing Manager’s Index) recorded 47.2% in September 2024, matching the figure recorded in August. A figure less than 50% indicates a contraction in manufacturing activity. This marked the sixth consecutive month of contraction for the manufacturing sector in September. Also, the New Orders Index remained in the contraction territory for the sixth consecutive month, registering 46.1% in September. The third quarter of the year registered a continued slowdown in orders compared with the beginning of the year, with weaker-than-expected readings in the manufacturing sector.
Technological Advancement Benefits: The U.S. industrial manufacturing companies have been focused on digitizing their business operations with the latest technologies and business models. Digitization has enabled several manufacturers to boost their competitiveness with enhanced operational productivity, product quality, and reduced costs. A surge in the e-commerce business has also been proving beneficial for the industry players.
Investments in Product Development & Innovation: The industry participants’ constant focus on innovation, product upgrades and the development of new products to stay competitive in the market should drive growth. While this augurs well for the industry’s long-term growth, hefty investments in research and development often leave companies with highly leveraged balance sheets.
Acquisition-Based Growth Strategy: The industry participants bank on an acquisition-based growth strategy to expand their customer reach and product offerings. This helps them foray into new markets and solidify their competitive position. Exposure to various end markets helps industrial manufacturing companies offset risks associated with a single market.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Manufacturing – General Industrial industry, housed within the broader Zacks Industrial Products sector, currently carries a Zacks Industry Rank #101. This rank places it in the top 40% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
Given the industry’s solid near-term prospects, we will present a few stocks worth considering for your portfolio. But before that, it is worth taking a look at the industry’s stock market performance and current valuation.
Industry Outperforms Sector & Lags S&P
The Zacks Manufacturing – General Industrial industry has outperformed the broader sector but lagged the Zacks S&P 500 composite index over the past year.
Over this period, the industry has appreciated 30.2% compared with the sector and the S&P 500 Index’s growth of 28.2% and 32.5%, respectively.
One-Year Price Performance
Industry's Current Valuation
On the basis of forward 12-month Price-to-Earnings (P/E), which is a commonly used multiple for valuing manufacturing stocks, the industry is currently trading at 22.04X compared with the S&P 500’s 22.08X. It is above the sector’s P/E (F12M) ratio of 20.32X.
In the past five years, the industry has traded as high as 26.99X and as low as 15.90X, with the median being 21.45X, as the chart below shows.
Price-to-Earnings Ratio vs SP500
Price-to-Earnings Ratio vs Sector
4 Manufacturing-General Industrial Stocks Leading the Pack
Parker-Hannifin: Based in Cleveland, OH, this company is a diversified manufacturer of motion and control technologies and systems globally. It is benefiting from steady demand in the commercial and military end markets across both OEM and aftermarket channels. Strong demand for its products and aftermarket support services in the general aviation market, driven by growth in air transport activities, augurs well for the company. Strength in its defense end market, owing to stable U.S. and international defense spending volumes, is also likely to be beneficial. Synergies from the Meggitt buyout (September 2022) and benefits from the Win strategy have also been supporting its growth.
This Zacks Rank #2 (Buy) company reported better-than-expected results in each of the trailing four quarters, the earnings surprise being 11.2%, on average. The Zacks Consensus Estimate for PH’s earnings has been revised upward by 0.3% to $26.65 for fiscal 2025 (ending June 2025) in the past 60 days. Shares of the company have gained 60.5% in the past year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: PH
Ingersoll Rand: Headquartered in Davidson, NC, Ingersoll Rand is a global industrial company with expertise in industrial and mission-critical flow creation technologies. IR is poised to benefit from its solid product portfolio, innovation capabilities, and focus on boosting aftermarket businesses. Higher orders for industrial vacuums and blowers are likely to drive its performance in the quarters ahead. The company’s ability to generate strong cash flows supports its measures to reward shareholders through dividends and share buybacks.
This Zacks Rank #2 company reported better-than-expected results in each of the last four quarters, the earnings surprise being 11%, on average. The Zacks Consensus Estimate for Ingersoll Rand’s 2024 earnings has been revised upward by 1.2% to $3.33 in the past 60 days. Its shares have surged 55.1% in the past year.
Price and Consensus: IR
Xylem: The Rye Brook, NY-based company is one of the leading providers of water solutions worldwide. XYL has a significant presence in the United States, the Asia Pacific, Europe and various other nations. Xylem is benefiting from robust demand for advanced technology solutions like smart metering and other applications, primarily in the United States. Strong momentum in the treatment applications business, supported by increasing capital projects in emerging markets, also bodes well.
This Zacks Rank #2 company reported better-than-expected results in each of the last four quarters, the earnings surprise being 6.1%, on average. In the past 60 days, the Zacks Consensus Estimate for the company’s 2024 earnings has increased by a penny to $4.26. The company has soared 48.9% in the past year.
Price and Consensus: XYL
Flowserve: Headquartered in Irving, TX, the company is a leading manufacturer and aftermarket service provider of comprehensive flow-control systems globally. FLS is witnessing improved customer orders resulting from large project wins in the oil and gas end market. Strength in the chemical end market, led by the Emerald greenfield petrochemical project in Saudi Arabia, has also been a positive. Solid booking level in the power generation market also bodes well, driven by the growth in data center capacity and increasing Artificial Intelligence activity.
This Zacks Rank #2 company reported better-than-expected results in each of the trailing four quarters, the earnings surprise being 18.2%, on average. The Zacks Consensus Estimate for Flowserve’s bottom-line has inched up 0.7% to $2.76 for 2024 in the past 60 days. Shares of the company have gained 42% in the past year.
Price and Consensus: FLS
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