The global economy is taking a turn this quarter, with the United States and China leading the way. After reporting a year of consecutive contraction, the U.S. manufacturing sector has finally pushed out its first expansionary reading during March 2024.
Both professional and retail investors follow these trends in the ISM manufacturing PMI index reports. With exports rising by 6.4% in February, new orders were expected to kickstart a new wave of production activity. Commodity traders got ahead of the curb, leading the price per barrel past its previous $80 ceiling.
Three stocks lead the manufacturing wave in this cycle like a wave set to continue. Names like Stanley Black & Decker Inc. (NYSE: SWK), Crane (NYSE: CR), and even Flowserve Co. (NYSE: FLS) have all earned Wall Street analyst preference in all the metrics that matter.
Don't Fight the Market
Today's trends aren't news for those who know where to look. In their 2024 macro outlook report, analysts at The Goldman Sachs Group Inc. (NYSE: GS) laid out their expectations for a manufacturing breakout this year. So far, they are right.
The bull run is also spreading outside of the U.S., as China's manufacturing PMI read its first expansionary reading since the third quarter of 2023. As the two nations are interdependent when it comes to imports and exports, stocks with international sales exposure (such as the ones mentioned) are likely to emerge winners.
One last push could come from a lower dollar index, which could be set on by the Federal Reserve's (the Fed's) promise to cut interest rates later this year. Traders think these cuts may come as soon as May or June 2024, according to the FedWatch tool from the CME Group Inc. (NASDAQ: CME).
Lower interest rates make the dollar cheaper, making American exports more attractive for foreign nations to buy with their relatively stronger currencies.
Wall Street's Front-Row Seat
There are ways for retail investors to get an insight into the inside table without tapping into the information flow. Analysts think that earnings per share (EPS) for these names is set to beat the rest of the industry.
Analysts project an average of 14.4% EPS growth in the next 12 months, which applies to the industrial and manufacturing sectors. Anything above this benchmark could guide investors to the companies that could benefit from this coming economic growth.
In the case of Stanley Black & Decker, analysts project 37% EPS growth, more than twice as much as the industry. Considering the stock trades at 92% of its 52-week high today, bullish momentum may return it to its former glory days of 2021, when the stock traded at an all-time high of $225 a share.
Crane stock is 23% above the industry's average growth and is set to push a 17.7% EPS advance this year. Markets are willing to pay a forward price-to-earnings ratio (forward P/E) of 24x for these future earnings, valuing the stock 29% above the industry's average valuation of 18.4x.
The saying "It must be expensive for a reason" applies here; now investors know that the reason could be found in the EPS growth. Far from being a dip, Crane stock is flirting with new all-time high prices; further momentum may be a reasonable expectation.
Analysts at Bank of America Co. (NYSE: BAC) boosted their price targets for Crane up to $140 a share, calling for a nearly 5% upside from today's prices.
Last but not least, Flowserve analysts want to see EPS rise by 17.3% this year, again beating the industry average. Institutions like the Vanguard Group liked this trend enough to buy into it. As of March 2024, the asset manager increased its exposure by 1.1% in Flowserve stock, which was roughly a $6 million transaction.
Pieces to the Puzzle
Expecting a construction boom in the U.S., Warren Buffett started buying homebuilding stocks like D.R. Horton Inc. (NYSE: DHI) in the fourth quarter of 2023.
Stanley Black & Decker and Flowserve will be on the front lines, providing the boom with all the necessary tools. For this apparent fundamental reason, Wall Street may now hold these stocks in high regard.
For Crane, there is a dependency on the aerospace industry. Lower interest rates may boost commercial and tourist travel in the U.S., so airline stocks and even names like Boeing Co. (NYSE: B.A.) could see increased demand. These EPS projections may result from a spillover effect from the leading players into Crane's parts.