Factory orders rebounded in June following a decline in May. Even though aircraft bookings led gains for the month, other sectors also recorded meaningful increases. Overall, the report indicates that manufacturing is recovering from the sluggishness it has suffered during the first half of the year.
Orders Rebound in June Among those sectors which recorded double-digit gains over the month were aircraft for defense and non-defense usage, computers and ship builders. The increases recorded in June imply that it would be a good idea to add stocks from these sectors to your portfolio.
According to data released by the Commerce Department, new orders for manufactured goods rose 1.8% in June. The increase that was experienced was in keeping with expectations. This upsurge comes after a 1.1% decline in May, revised further downward from the initial drop of 1%.
The increase in orders was powered by a 9.3% increase in orders for transportation equipment. This, in turn, was primarily fueled by a 65.4% surge in orders for aircraft. Other sectors which experienced an upward trend in orders include furniture, electrical equipment, components, appliances and machinery.
Inventories Rise
Orders for non-defense capital goods, apart from aircraft, is widely believed to be a gauge for business confidence and plans for expenditure. This metric rose by 0.7%, lower than the 0.9% experienced in May.
However, shipments of core capital goods rose 0.3% after declining 0.1% in May. This is utilized to determine expenditure on business equipment in the GDP report. Inventories for manufacturing went up 0.6%, improving on the number presented in the report on advance estimate for Q2 GDP.
Our Choices
The rebound in factory orders, especially the strong increase in inventories, comes right after an upward revision for construction spending for the April and May. This indicates that the second estimate for Q2 GDP could come in at almost 3%. The advance estimate puts the figure at 2.3%.
This is why adding stocks from these sectors to your portfolio may be a prudent option. Our selection is backed by growth, valuation metrics and impressive earnings as well as good Zacks Rank.Together, these numbers bode well for the business environment as a whole and indicate that manufacturing activity may continue to trend higher. Four sectors have experienced month-over-month double digit percentage increases in factory orders on a seasonally adjusted basis. These are non-defense aircraft and parts, defense aircraft and parts, ships and boats, and computers. They have experienced increases of 65.4%, 31%, 25.8% and 25.3%, respectively.
VASCO Data Security International Inc. (VDSI - Snapshot Report) designs, develops, markets and provides support for security products and services which manage and secure access to computer systems of corporate and government customers.
The company posted second-quarter 2015 adjusted earnings of 40 cents per share, beating the Zacks Consensus Estimate of 32 cents. Total revenues of $65 million in the second quarter also surpassed the Zacks Consensus Estimate of $56 million
Apart from a Zacks Rank #2 (Buy), VASCO Data Security International has expected earnings growth of 12.8%. It has a P/E (F1) of 16.75x.
Northrop Grumman Corp. (NOC - Analyst Report) supplies a broad array of products and services to the U.S. Department of Defense (DoD), including electronic systems, information technology, aircraft, space technology and systems integration services.
The company reported second-quarter 2015 adjusted earnings of $2.54 per share, beating the Zacks Consensus Estimate of $2.33. Northrop Grumman reported total revenue of $5,896 million, marginally lower than the Zacks Consensus Estimate of $5,900 million
Apart from a Zacks Rank #2 (Buy), Northrop Grumman has expected earnings growth of 11.6% for the current year. It has a P/E (F1) of 17.93x.
General Dynamics Corp. (GD - Analyst Report) engages in mission-critical information systems and technologies; land and expeditionary combat vehicles, armaments and munitions; shipbuilding and marine systems; and business aviation.
Its Marine Systems division makes nuclear submarines, surface combatants and auxiliary ships. General Dynamics reported second-quarter 2015 earnings from continuing operations of $2.27 per share, exceeding the Zacks Consensus Estimate of $2.03. The company lifted its full-year earnings per share outlook from continuing operations from $8.05–$8.10 to $8.70–$8.80.
General Dynamics holds a Zacks Rank #2 (Buy) and has expected earnings growth of 7.4% for the current year. It has a P/E (F1) of 16.91x.
Spirit AeroSystems Holdings, Inc. (SPR - Snapshot Report) is the world's largest independent supplier of commercial airplane assemblies and components. The company posted second-quarter 2015 adjusted earnings of $1.09 per share, beating the Zacks Consensus Estimate of 97 cents. Total revenue of $1,699 million in the second quarter also surpassed the Zacks Consensus Estimate of $1,713 million
Spirit AeroSystems Holdings holds a Zacks Rank #2 (Buy) and the projected earnings growth is 6%.The forward price-to-earnings ratio (P/E) for the current financial year (F1) is 14.34.
by Swarup Gupta
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