Rising exports are the tide lifting these 3 manufacturing stocks

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 US manufacturing sector finally posted its first expansionary reading in March 2024.

Both professional and retail investors follow these trends in ISM Manufacturing PMI reports. With exports rising 6.4% in February, new orders were expected to spark a new wave of manufacturing activity. Commodity traders managed to overcome the brake, pushing the price of a barrel above the previous ceiling of $80.

Three stocks lead the manufacturing wave this cycle as a wave set to continue. Names like Stanley Black & Decker Inc. NYSE:SWK, Crane NYSE: CRand even Flowserve Co. New York Stock Exchange: FLS they have all earned the preference of Wall Street analysts in every measure that matters.

Don’t fight the market

Today’s trends are nothing new to those who know where to look. In their report on the macroeconomic outlook for 2024, analysts at The Goldman Sachs Group Inc. NYSE:GS have laid out their expectations for a recovery in the manufacturing sector this year. So far they are right.

The bull run is also spreading outside the United States, as China’s manufacturing PMI recorded its first expansionary reading since the third quarter of 2023. Since the two nations are interdependent when it comes to imports and exports, stocks with exposure to international sales (like the ones mentioned) will likely come out on top.

A final push could come from a lower dollar index, which could be triggered by the Federal Reserve’s (Fed) promise to cut interest rates by the end of the year. Traders believe these cuts could come as early as May or June 2024, according to the FedWatch tool CME Group Inc. NASDAQ: ECM.

Lower interest rates make the dollar cheaper, making American exports more attractive for foreign nations to purchase with their relatively stronger currencies.

The front row seat on Wall Street

There are ways retail investors can get a sense of the internal chart without tapping into the information flow. Analysts believe that these stocks’ earnings per share (EPS) are set to beat the rest of the sector.

Analysts expect an average EPS growth of 14.4% over the next 12 months, which applies to the industrial and manufacturing sectors. Anything above this benchmark could point investors towards companies that could benefit from coming economic growth.

In the case of Stanley Black & Decker, analysts expect EPS growth of 37%, more than double that of the industry. Considering the shares are trading today at 92% of their 52-week high, the bullish momentum could take them back to its previous glory days of 2021, when shares traded at an all-time high of $225 per share.

Cranes stock is 23% above average industry growth and is set to drive an EPS increase of 17.7% this year. Markets are willing to pay a forward price-to-earnings (forward P/E) ratio of 24x for these future earnings, valuing the stock 29% higher than the industry average valuation of 18.4x.

The saying “It has to be expensive for a reason” applies here; now investors know the reason could be found in EPS growth. Far from a decline, 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 have raised their price targets for Crane to $140 per share, predicting an upside of nearly 5% from today’s prices.

Last but not least, Flowserve analysts want to see EPS increase by 17.3% this year, beating the industry average once again. Institutions like the Vanguard Group liked this trend enough to embrace it. As of March 2024, the asset manager increased its exposure by 1.1% in Flowserve shares, which corresponded to a transaction of approximately $6 million.

Puzzle pieces

In anticipation of a construction boom in the United States, Warren Buffett began buying construction stocks D.R. Horton Inc. NYSE: DHI in the fourth quarter of 2023.

Stanley Black & Decker and Flowserve will be at the forefront, providing the reef 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 dependence on the aerospace industry. Lower interest rates could boost U.S. business and tourism travel, hence airline stocks and even similar names Boeing Co. NYSE: BA could see an increase in demand. These EPS projections could result from a spillover effect from the major players to Crane’s parts.

Before you consider Boeing, you’ll want to hear this.

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