4 Industrial Stocks Poised To Surpass Earnings Estimates

The U.S. market has been exhibiting signs of improvement since the beginning of the year. Year to date, the country’s major stock indexes have yielded healthy returns, including 14.2% by the S&P 500, 24.5% by the Nasdaq Composite and roughly 11.8% by the NYSE Composite. Industrial Products, one of the 16 Zacks sector, recorded 19.4% growth during the same period.

We believe that the Trump government’s promised growth policies, especially the proposed $1 trillion spending on infrastructure improvement, has been one of the primary forces driving the rally. Other tailwinds are the strengthening housing and commercial construction markets as well as steady growth in new job additions. In September, the country’s unemployment rate fell 0.2% percentage points to 4.2%. Also, the country’s GDP grew at an annualized rate of 3% in the July-September quarter.

In addition, few economic indicators point toward healthy operating conditions in the industry. Industrial production — a measure of the level of output of manufacturing, mining and utilities sectors in a country — grew 1.6% year over year in September, 1.2% in August and 1.8% in July. New orders for U.S.-manufactured machinery increased 6.4% in the first eight months of 2017, primarily for the construction, mining and oil and gas field and industrial machinery. Also, rise of 2 percentage points in Purchasing Managers’ Index or manufacturing index in September is a positive indicator for the industry.

Per the Earnings Preview dated Oct 27, earnings for the quarter reflect year-over-year improvement. As of that date, roughly 272 of S&P 500 companies reported results for the July-September quarter, with nearly 75.7% beating earnings estimates and 66.2% surpassing revenue projections. Also, the index’s earnings have grown 8.7% year over year and revenues have increased 6.7%.

In the quarter, the market is anticipated to perform well, witnessing earnings and sales growth of 5.4% and 5.5%, respectively over the year-ago quarter. Industrial products stocks, accounting for 2% of the S&P 500’s total market capitalization, are likely to see earnings growth of 18% and sales growth of 4.2%.