Per the latest report from the Federal Reserve on Aug 15, U.S. industrial production for the month of July increased 0.1%. The rise in the metric, which measures output at factories, mines and utilities across the country, was buoyed by a steady rise in manufacturing output.

An increase in manufacturing activity points toward steady economic growth. Under circumstances where manufacturing and factory output remains robust, investing in stocks of companies from the space seems prudent.

U.S. Manufacturing Remains Upbeat

Experts had largely expected that U.S. factories would suffer due to an increase in tariffs on China by the Trump administration. Such anticipations stemmed from the fact that China too had imposed increased retaliatory tariffs on the United States. However, manufacturing output, which constitutes about 12% of the economy, increased steadily on the back of strong domestic and global demand. The metric gained 0.3% last month, in line with the consensus estimate.

Such growth was pivotal in boosting overall industrial production last month. On the other hand, capacity utilization, which measures the overall production efficiency of firms within the country, remained unchanged from June at 78.1% in July.

What Led to the Growth?

Apart from improving manufacturing activity, a steady increase in motor vehicle production, machinery output, and production of computers and electronics in the country contributed significantly to last month’s rise in industrial production. While motor vehicle production rose 0.9% last month, machinery output and production of computers and electronics logged 0.6% and 1.9% growth, respectively, in the same period.

Notably, manufacturing output increased 2.8% from the same period in 2017. Meanwhile, mining production declined 0.3% in July and oil and gas well drilling declined 4.3% in July. Despite falling, mining output remained well above the 2017 level, increasing 13% last year. Also, utilities have increased 2.3% from 2017.

4 Hot Choices

Manufacturing activity in the United States has been going from strength to strength. Such a claim stems from the fact that industrial production remained largely resilient to shocks from global trade war. Such developments are also a positive sign for U.S. economic growth because manufacturing constitutes a major chunk of the GDP.

In this context, we have selected four stocks that are expected to gain from these factors. These four stocks carry a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Meritor, Inc. MTOR is a global automotive parts manufacturer and supplier.

The company is based out of Troy, MI. The expected earnings growth rate for the current year is 57.45%. The Zacks Consensus Estimate for the current year has improved 5.3% over the past 60 days.

Actuant Corporation ATU is involved in the designing, manufacture and distribution of various industrial products and systems for its clients in more than 30 countries.

The company is based out of Menomonee Falls, WI. The expected earnings growth rate for the current year is 28.23%. The Zacks Consensus Estimate for the current year has improved 2.9% over the past 60 days.

Cleveland-Cliffs Inc. CLF is the largest producer of iron ore pellets in North America.

The company is based out of Menomonee Falls, WI. The expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for the current year has improved 60.5% over the past 60 days.

Caterpillar Inc. CAT manufactures and sells mining and construction equipment, natural gas engines, diesel-electric locomotives and other related products in the market.

The company is based out of Deerfield, IL. The expected earnings growth rate for the current year is 67.72%. The Zacks Consensus Estimate for the current year has improved 7.5% over the past 60 days.