The manufacturing industry was one of the hardest hits in 2020. In the initial months of the coronavirus pandemic, many companies were forced to shutter operations. However, opportunistic investors kept their eye on several of these companies as recovery stocks. And at the beginning of 2021, the emergence of several vaccines allowed businesses to reopen. Not surprisingly, manufacturing stocks were among the biggest winners.
But where are these stocks headed in 2022? In December, American manufacturers reported their slowest pace of growth in 11 months. A closely followed index of U.S.-based manufacturers dropped to 58.7% in the final month of 2021. This was slightly lower than the 61.1% in November according to the Institute for Supply Management.
Still, any number of above 50% signals expansion. And the number is only slightly below the 60% level that signifies exceptional growth.
Ironically, it’s the virus that continues to provide a headwind. Supply chains are unwinding but not nearly fast enough to prevent material shortages. The controversy surrounding vaccine mandates is causing labor shortages.
However, there’s a strong likelihood that manufacturing stocks will have a strong year in 2022. And even if they don’t, many of these stocks pay a reliable dividend. That’s why we’ve put together this special presentation on the manufacturing stocks that will overcome current difficulties.
Quick Links
- Caterpillar
- Deere & Company
- Boeing
- International Business Machines
- Builder’s FirstSource
- 3M
- Plug Power
#1 - Caterpillar (NYSE:CAT)
Caterpillar (NYSE:CAT) stock is up 17% in the last 12 months which is easily outperforming the Industrials sector. However, the stock is 12% below its 52-week high and analysts give CAT stock a consensus price target of $235 which is an 8% increase and suggests that the stock is undervalued at this time.
Caterpillar was an unquestioned winner as construction activity picked up in 2021. That may remain a catalyst in 2022. And analysts also anticipate that Caterpillar may benefit from oil prices remaining at elevated levels. On the other hand, Caterpillar has made no secret that it has been affected by supply chain disruption as well as rising materials and commodities cost due to inflation.
Weighing all those factors may have some investors concerned about growth. However, one reason that investors buy CAT stock is for the dividend. The company is a member of the Dividend Aristocrat club having increased its dividend in each of the last 28 years.
About Caterpillar
Caterpillar Inc manufactures and sells construction and mining equipment, off-highway diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives in worldwide. Its Construction Industries segment offers asphalt pavers, compactors, road reclaimers, forestry machines, cold planers, material handlers, track-type tractors, excavators, telehandlers, motor graders, and pipelayers; compact track, wheel, track-type, backhoe, and skid steer loaders; and related parts and tools.
Read More - Current Price
- $381.44
- Consensus Rating
- Hold
- Ratings Breakdown
- 6 Buy Ratings, 7 Hold Ratings, 4 Sell Ratings.
- Consensus Price Target
- $365.33 (4.2% Downside)
#2 - Deere & Company (NYSE:DE)
If you’re looking for a stock that’s outpaced the performance of the S&P 500 Index, you can look at Deere & Company (NYSE:DE). The stock is up 38% in the last 12 months. The company has a diversified business model that makes it a market share leader across multiple large farm categories.
Despite delivering double beats in revenue and earnings for the last four quarters, continuing concerns over the coronavirus as well as supply chain difficulties have kept DE stock from breaking out of a range. That’s been particularly true since the end of September. But in the last month, the stock is looking like it’s ready to break out.
To that end, analysts give DE stock a consensus price target of $406.13 which is a 10% gain from its current level. One reason for optimism is continuing elevated commodity prices which have historically been a harbinger of capital gains growth for DE stock.
And John Deere has shown an ability to increase shareholder value with dividends and stock buybacks during strong economic times.
About Deere & Company
Deere & Company engages in the manufacture and distribution of various equipment worldwide. The company operates through four segments: Production and Precision Agriculture, Small Agriculture and Turf, Construction and Forestry, and Financial Services. The Production and Precision Agriculture segment provides large and medium tractors, combines, cotton pickers and strippers, sugarcane harvesters and loaders, harvesting front-end equipment, pull-behind scrapers, and tillage and seeding equipment, as well as application equipment, including sprayers and nutrient management, and soil preparation machinery for grain growers.
Read More - Current Price
- $405.11
- Consensus Rating
- Hold
- Ratings Breakdown
- 8 Buy Ratings, 12 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $420.69 (3.8% Upside)
#3 - Boeing (NYSE:BA)
For a stock that analysts believe has more upside, you should look at Boeing (NYSE:BA). After a terrible 2019 marred by safety concerns over its 737 MAX jets, Boeing was whacked by the pandemic. And although BA stock rebounded in a big way in 2020, it struggled to gain traction in 2021. In fact, the stock gained just 4% in the last 12 months.
However, analysts view Boeing stock as being undervalued with an upside of 26.9%. A significant reason for this is that analysts believe that the worst is over. That opinion received some bullish support when Safran, the French aerospace company, announced it would be hiring 12,000 employees in expectations of a recovery in the aerospace industry.
The question will be how quickly investors should expect capital growth in the stock. The real growth isn’t forecast until 2023 when Boeing is expected to return to profitability. That also means it won’t be until sometime after that when Boeing may decide to reinstate its dividend.
About Boeing
The Boeing Company, together with its subsidiaries, designs, develops, manufactures, sells, services, and supports commercial jetliners, military aircraft, satellites, missile defense, human space flight and launch systems, and services worldwide. The company operates through Commercial Airplanes; Defense, Space & Security; and Global Services segments.
Read More - Current Price
- $146.11
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 14 Buy Ratings, 9 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $190.37 (30.3% Upside)
#4 - International Business Machines (NYSE:IBM)
Looking at the tech sector, investors can consider, International Business Machines (NYSE:IBM). IBM posted 11% growth in the last 12 months and has largely recovered from the sharp sell-off it suffered in mid-October. The reason for the sell-off was a decline in revenue after the company completed its sell-off of Kyndryl.
The revival in IBM has been largely due to its pivot towards the cloud and artificial intelligence (AI). However, the company is launching some new hardware solutions that are expected to drive revenue growth in the first half of 2022. This doesn’t mean that IBM is abandoning its shift to become less reliant on these low margin businesses. But it does mean that, at least for this year, IBM may be able to capitalize on the reopening trade.
Analysts suggest that IBM stock has a nearly 10% upside from its current level. And IBM is a Dividend Aristocrat having increased its dividend in each of the last 27 years.
About International Business Machines
International Business Machines Corporation, together with its subsidiaries, provides integrated solutions and services worldwide. The company operates through Software, Consulting, Infrastructure, and Financing segments. The Software segment offers a hybrid cloud and AI platforms that allows clients to realize their digital and AI transformations across the applications, data, and environments in which they operate.
Read More - Current Price
- $214.61
- Consensus Rating
- Hold
- Ratings Breakdown
- 6 Buy Ratings, 8 Hold Ratings, 3 Sell Ratings.
- Consensus Price Target
- $208.12 (3.0% Downside)
#5 - Builder’s FirstSource (NYSE:BLDR)
A decision to invest in Builder’s FirstSource (NYSE:BLDR) will depend on how you feel about the continued strength in the housing market. In November 2021, the U.S. Census Bureau reported that housing starts increased by 11.8%, the highest level since March. This is part of what is being considered a secular uptrend. And despite housing starts increasing, most estimates say the United States is short millions of single-family homes.
And that’s good news for Builder’s FirstSource that manufacturers and supplies building materials, manufactured components, and provides other services to homebuilders, contractors, remodelers, and consumers throughout the United States.
The company was originally a lumber provider but has expanded far beyond that through a series of acquisitions. And those acquisitions have boosted the company’s margins and profits.
However, investors may want to wait to get a clear buying signal. BLDR stock is up 115% in the last 12 months which puts it at the ceiling of analysts’ estimates.
About Builders FirstSource
Builders FirstSource, Inc, together with its subsidiaries, manufactures and supplies building materials, manufactured components, and construction services to professional homebuilders, sub-contractors, remodelers, and consumers in the United States. It offers lumber and lumber sheet goods comprising dimensional lumber, plywood, and oriented strand board products that are used in on-site house framing; manufactured products, such as wood floor and roof trusses, floor trusses, wall panels, stairs, and engineered wood products; and windows, and interior and exterior door units, as well as interior trims and custom products comprising intricate mouldings, stair parts, and columns under the Synboard brand name.
Read More - Current Price
- $174.95
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 15 Buy Ratings, 4 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $206.47 (18.0% Upside)
#6 - 3M (NYSE:MMM)
3M (NYSE:MMM) was a pandemic winner as the company’s products and services were in high demand. However, since hitting its 52-week high in the Spring of 2021, MMM stock price is down 14%. In fact, shareholders who bought 3M stock five years ago, are seeing very little share price growth. But with the stock near its 52-week low, is the stock a buy?
Investors have concerns about how the company can respond to supply chain disruptions and an increase in costs. And that is being reflected in the company’s top and bottom lines which continue to increase on a year-over-year (YOY) basis, but at a slower rate.
That’s a legitimate concern, but it isn’t likely to affect the company’s ability to pay its dividend. And that’s the real reason many investors buy 3M stock. The company is a Dividend King that has increased its dividend in each of the last 63 years.
Investors who don’t already have a position in MMM stock may want to wait until the company reports earnings in late January.
About 3M
3M Company provides diversified technology services in the United States and internationally. The company's Safety and Industrial segment offers industrial abrasives and finishing for metalworking applications; autobody repair solutions; closure systems for personal hygiene products, masking, and packaging materials; electrical products and materials for construction and maintenance, power distribution, and electrical original equipment manufacturers; structural adhesives and tapes; respiratory, hearing, eye, and fall protection solutions; and natural and color-coated mineral granules for shingles.
Read More - Current Price
- $127.83
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 11 Buy Ratings, 3 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $144.87 (13.3% Upside)
#7 - Plug Power (NASDAQ:PLUG)
If you’re more of a speculative investor, you can consider Plug Power (NASDAQ:PLUG). The company is involved in the manufacturing and development of hydrogen fuel cells that are designed primarily for the material handling and stationary power markets.
PLUG stock has seen two spikes in the last 12 months. The first occurred in the first month of the year. This was due to excitement regarding the incoming Biden administration’s focus on clean energy and also likely a bit of FOMO from the meme stock movement. It also surged later in the year on hopes of passage for the Biden administration’s infrastructure bill.
In both cases, the stock has failed to hold those gains. And with the stock trading near its 52-week low there are two schools of thought. One is to look at the analysts which suggest PLUG stock has an upside of over 60%. The other is the reality that hydrogen is still a nascent technology in the clean energy game.
About Plug Power
Plug Power Inc develops hydrogen and fuel cell product solutions in North America, Europe, Asia, and internationally. The company offers GenDrive, a hydrogen-fueled proton exchange membrane (PEM) fuel cell system that provides power to material handling electric vehicles; GenSure, a stationary fuel cell solution that offers modular PEM fuel cell power to support the backup and grid-support power requirements of the telecommunications, transportation, and utility sectors; ProGen, a fuel cell stack and engine technology used in mobility and stationary fuel cell systems, and as engines in electric delivery vans; GenFuel, a liquid hydrogen fueling delivery, generation, storage, and dispensing system; GenCare, an ongoing Internet of Things-based maintenance and on-site service program for GenDrive fuel cell systems, GenSure fuel cell systems, GenFuel hydrogen storage and dispensing products, and ProGen fuel cell engines; and GenKey, an integrated turn-key solution for transitioning to fuel cell power.
Read More - Current Price
- $1.92
- Consensus Rating
- Hold
- Ratings Breakdown
- 8 Buy Ratings, 11 Hold Ratings, 4 Sell Ratings.
- Consensus Price Target
- $4.52 (135.5% Upside)
Strong demand will remain a catalyst for the manufacturing sector. However, ongoing supply chain disruption along with the surge of Covid-19 cases due to the omicron variant will continue to weigh on the sector as some manufacturers may find it hard to keep manufacturing operating at full tilt.
That’s why it’s important to be selective about the manufacturing stocks to add to your portfolio. If investors are looking for a different way to invest in the sector, they can select one of the many mutual funds or exchange-traded funds (ETFs) that focus on the sector.
A great example is the iShares U.S. Infrastructure ETF (BATS:IFRA) which is up 29.8% in the last 12 months. If investors are looking for an ETF that pays a dividend, a solid choice is the JPMorgan Equity Premium Income ETF (NYSEARA:JEPI) that has a dividend yield that is currently over 6.5%.
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