Like many of its peers, manufacturing stocks hit a new low at the onset of the novel coronavirus pandemic. However, activity in the industry has picked up since then, making an investment in this sector worth considering. The Institute of Supply Management (ISM) index that tracks stocks in this sector reported a strong rebound in activity when the economy reopened in April.
The numbers only continued to rise since then. The ISM index increased from 43.1 in May to 52.6 in June. This was partly due to the revival of consumer spending on durable goods, which was a boon for many manufacturers. This was further amplified by a zero-interest rate environment. Low interest rates mean that manufacturers can take out loans to expand their businesses with ease. According to The Wall Street Journal, interest rates are expected to remain low until 2023.
As manufacturing stocks continue to gain momentum in the coming months, here are three that stand out in particular:
Manufacturing Stocks: YETI Holdings (YETI)
The pandemic brought travel to a standstill but outdoor leisure activities thrived in a socially distant environment. As people headed to lakes and beaches this summer, demand for YETI Holdings products spiked. The Austin-based company produces a number of products but is perhaps best known for its coolers.
The heavy-duty cooler, which retails for $1,299 has become a staple for fishermen and tailgaters alike. In addition to this, YETI also has an extensive drinkware range which accounts for 57% of its revenue. The company is a part of a new wave of companies like Lululemon (NASDAQ:LULU) that thrives on strong customer loyalty in the digital age.
For the quarter ended in June, the company saw its direct-to-consumer sales rise by 61% and overall sales increase by 7%. This was an impressive feat, given the challenging year many companies in the industry faced.
As we head into the holiday season, Yahoo Finance reports YETI will see a second spike in sales. Total sales for the fiscal year 2020 are estimated to increase by 12.2% bringing the total value to $1.03 billion. Earnings for the year are also expected to increase by 19.2% to $1.43 per share.
With strong underlying fundamentals and optimistic projections, YETI stock is a manufacturing stock that’s worth buying. As a consumer-driven investment, the company will experience some gains as spending picks up in the coming months.
3M, the industrial powerhouse experienced some major lows this year. But for many, this stock still remains a strong buy despite a bleak future. Experts believe the manufacturing stock is undervalued due to the cyclical nature of the sector. This means that once the economy picks up, 3M is likely to see demand for its products rise again.
3M remains fairly confident in its ability to make a comeback. On Sept. 15, the company provided an optimistic sales outlook for its third quarter. The manufacturing giant expects its Q3 sales to be between $8.2 to $8.3 billion. This is higher than the $8 billion in sales value from a year ago. Sales in August of this year also increased by 2% from 2019.
Second, it’s worth considering the stock’s impressive yield. Earlier this year, 3M carried a dividend yield of 4%, which has since fallen to 3.67%. Although this is lower, it is still much better than the S&P 500 index, which only offers a yield of 1.9%. 3M is also known for maintaining a high yield, making this stock a worthy investment for dividend investors.
Finally, 3M may be a leader in the manufacturing sector but has created a name for itself in other industries as well. The company is famous for its Post-it notes, which have become a staple in the workplace. This also speaks to 3M’s innovative quality, which will keep the company afloat despite the short-term headwinds.
MMM stock is a manufacturing stock that’s worth buying, but it will require a lot of patience before the returns start to flow in.
Caterpillar is one of the more interesting stocks in the manufacturing sector. For one, CAT stock is highly cyclical. That means it is closely tied to economic conditions. The demand for the company’s equipment increases when market conditions are good and fall during periods of economic uncertainty.
As the economy recovers in the coming months, Caterpillar is likely to see an increase in its activity levels. The pandemic served as a death-knell for many of its business segments, but the company maintains a diverse business model. It currently has operations in industries like mining, energy and transport.
With its share price expected to rise in the coming months, many investors consider the manufacturing stock to be a safe bet. Caterpillar has a track record of overcoming turbulent times and maintains an impressive dividend yield of 2.75%. It has been able to hold on to this yield despite seeing its share price fall this year.
CAT stock may not be at its best right now but it also presents a great opportunity for investors to place their bets while prices remain low. All of that stacks up in a way that makes it one of the more appealing manufacturing stocks to buy now.
On the date of publication, Divya Premkumar did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Divya Premkumar has a finance degree from the University of Houston, Texas. She is a financial writer and analyst who has written stories on various financial topics from investing to personal finance. Divya has been writing for InvestorPlace since 2020.