After years of factory closures and offshoring, manufacturing is returning to America. A 2022 report by the consulting firm McKinsey & Co. said that manufacturing in the U.S. is experiencing a “renaissance”. It noted that the sector today accounts for $2.3 trillion in annual gross domestic product (GDP), employs 12 million people, and directly supports hundreds of communities across the country.
New York Times (NYSE:NYT) columnist David Brooks recently wrote an article entitled “The American Renaissance Is Already at Hand“. He discusses the growth in U.S. manufacturing of everything from electric vehicles and microchips to renewable energy infrastructure. Brooks also highlights that the U.S. has added 530,000 net new manufacturing jobs since 2017.
Increasingly, the U.S. is gaining a competitive edge in manufacturing on long-time rivals that offer cheaper labor such as Mexico and China. While all of this is encouraging, the boom hasn’t yet been reflected in the stocks of manufacturing companies. Many manufacturing stocks are stagnant or trailing the broader market as gains remain concentrated in a few technology names.
Let’s examine the three most undervalued manufacturing stocks to buy this month.
General Electric (GE)
Industrial powerhouse General Electric’s (NYSE:GE) stock has had a big run this year but still looks undervalued by historic standards. The manufacturer of products ranging from wind turbines to aircraft engines has seen its share price rise 74% this year.
However, GE stock is currently trading 70% below the price it was at back in 2000. Furthermore, the stock went through a 1-for-8 reverse stock split in 2021 that was used to artificially inflate the share price. This happened as the company struggled with declining sales and a massive reorganization.
This year’s run in GE stock came after the company spun off its healthcare unit in January. This move will enable the company to focus more on its core businesses of aerospace and renewable energy. General Electric’s shares are now trading at 13 times forward earnings, which is low for a company of its size. And despite this year’s big move in the stock, analysts expect further gains. The median price target on GE stock is 14% higher than where the shares currently trade.
Illinois Tool Works (ITW)
Founded in 1912, Illinois Tool Works (NYSE:ITW) produces fasteners, components, and equipment that are needed in manufacturing and construction. ITW stock has only risen 8% this year, trailing the broader market. The shares are currently trading at 23 times forward earnings, which is in line with the average price-earnings (P/E) ratio among stocks in the S&P 500 index.
Also, ITW stock pays a strong quarterly dividend of $1.40 a share, which gives it a yield of 2.34%. In early August, the company’s board of directors approved a 7% increase to the dividend, marking the 52nd of raising its dividend. The board also approved a new $5 billion stock buyback program, which further benefits stockholders. ITW stock has been a long-term winner, having gained 65% over five years and increased 220% over the past decade.
Hewlett-Packard (HPQ)
Hewlett-Packard, commonly known as HP (NYSE:HPQ) is a major manufacturer of personal computers as well as traditional and 3D printers. The company is the second largest computer manufacturer in the world after Lenovo.
While many technology companies have seen their share prices take off this year, HPQ stock has been a laggard. Over the last 12 months, HP’s share price has increased a slight 2%. Over five years, the stock is up only 10%.
However, HPQ stock looks affordable right now, trading at just 12 times future earnings estimates. This is considered cheap for a tech company with a market cap of nearly $30 billion. HP also offers a high yield dividend to its shareholders. The company currently pays 26 cents a share per quarter for a yield of 3.78%. HPQ stock took a hit recently when it was revealed that famed investor Warren Buffett reduced his holding in the company, selling 5.5 million shares. However, Buffett still owns more than 10% of HP.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
