US Manufacturing Index Revs Up In June: Here's What It Means

- Jul 03, 2020-

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Per Institute for Supply Management’s (ISM) recent data, U.S. manufacturing sector was restored in June, courtesy of the gradual reopening of economy and the relaxation of coronavirus-induced lockdown.  

Going by the organization’s report, the manufacturing index rose 9.5 points to 52.6 in June, reflecting the biggest monthly leap since 1980. A reading above 50 indicates expansion in the sector. A Bloomberg survey establishes that economists anticipated this key industry gauge to rise to 49.8 in June.

According to ISM’s release, of the 17 manufacturing industries, 13 witnessed growth in June. Textile mills; wood products; furniture & related products; printing & related support activities; apparel, leather & allied products; food, beverage & tobacco products; computer & electronic products; plastics & rubber products; chemical products; miscellaneous manufacturing; non-metallic mineral products; paper products; and electrical equipment, appliances & components were the winning industries. Of the rest, four industries, namely transportation equipment, primary metals, fabricated metal products and machinery, contracted. 

Notably, both new orders index and production index climbed 24.6 points and 24.1 points to 56.4 and 57.3, respectively, last month, surpassing the key threshold of 50. ISM’s measure of manufacturing employment advanced to 42.1 in June from 32.1 in the prior month. Although the figure represents a giant stride sequentially, employment continues to exhibit a downtrend.

Although business resurrection, reopening of factory operations and revival of demand spurred the recent gains, uncertainties surrounding the coronavirus pandemic will keep weighing on the manufacturing activities. The recent spurt in coronavirus cases with anticipation of a second wave can counter the gains achieved so far.

"Activity likely bottomed in Q2, however manufacturing will face major challenges that will drag on its recovery," said Gregor Daco, chief US economist at Oxford Economics. "Looking ahead, weak demand, lingering supply chain disruptions, somewhat tighter financial conditions, historically low oil prices, and highly elevated uncertainty are poised to make for a lacklustre recovery,” he adds further.

Best Bets

At this stage, reckoning all the upsides, we zoom in on five stocks for investment purpose, cautiously selected from the industries that were top performers in June, namely food, beverage & tobacco products, chemical products, furniture & related products, computer & electronic products, and textiles. Each stock currently has a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

B&G Foods, Inc. BGS manufactures, sells and distributes high quality, shelf-stable, frozen food and household products across the United States, Canada and Puerto Rico. The company boasts a diversified portfolio of 50 brands, many of which grab a bigger piece of the pie in different markets. The company has a trailing four-quarter positive earnings surprise of 5.36%, on average. It is presently a #1 Ranked player. 

Green Plains, Inc. GPRE is a vertically integrated producer, marketer and distributer of ethanol. The company operates through four segments: Ethanol Production, Corn Oil Production, Agribusiness, and Marketing and Distribution. The company has a trailing four-quarter positive earnings surprise of 23.09%, on average, and presently flaunts a Zacks Rank of 1. 

LaZBoy Incorporated LZB is one of the world's leading residential furniture producers. Domiciled in Monroe, MI, this American entity manufactures residential furniture, ranging from upholstered recliners to sofas, stationary chairs, lift chairs and sleeper sofas. The company has a trailing four-quarter positive earnings surprise of 23.54%, on average, and currently has a Zacks Rank #2. 

Headquartered in Pleasanton, CA, Energous Corporation WATT is a developer of a disruptive wire-free charging technology. It solutions enable wireless charging or powering of electronic devices from a distance. The wireless charging solution that it is developing employs three dimensional pocketforming. The company has a trailing four-quarter positive earnings surprise of 5.69%, on average. It is a Zacks #2 Ranked player at present.

Hanesbrands, Inc.HBI engages in designing, manufacturing, sourcing and selling of apparel essentials for men, women and children in the United States and internationally. The company offers products under well-established brand labels, namely Hanes, Champion, Playtex, Bali, Just My Size, Barely There and Wonderbra.In the past 60 days, one estimate for the company’s current-year earnings has moved north. It currently carries a Zacks Rank of 2.