In the latest sign that U.S. manufacturing is in fine fettle, the New York Federal Reserve’s Empire State manufacturing index hit its highest level in three years during the month of October. A raft of recently released data also serves to indicate that the manufacturing sector has performed particularly well this year.

The reasons for the boom in the sector are not hard to seek. The Trump administration’s pro-business approach along with an improvement in key economies across the world has created a positive atmosphere for the industry. This is why it makes great sense to invest in manufacturing stocks, especially because these stocks have performed exceedingly well this year.

Empire State Index Hits 3-Year High

In October, the New York Federal Reserve’s Empire State manufacturing index increased from 24.4 to 30.2 in October. This figure exceeds most estimates and is also the highest level recorded in three years. Even though the index declined by a point to 24.4 in September, in August it had gained 15 points to hit 25.2, the highest reading since September 2014.

The index’s latest reading shows that the general optimism index has undergone and improvement. Such an upturn has come about despite a decline in new orders. However, shipments increased from 16.2 to 27.5. A gauge measuring the number of employees increased from 10.6 to 15.6. Additionally, indexes gauging for the outlook in the next six months also underwent an improvement.

ISM Manufacturing, Factory, Durable Orders Indicate Wider Improvement

Although the scope of this particular survey is limited, signs of wider improvement are already evident. According to a Commerce Department report released earlier this month, factory orders increased by 1.2% in August, rebounding from a decline of 3.3% in July. Orders for durable goods and non-defense capital goods except aircraft both increased by 2% and 1.1%, respectively, over August.

Also, the ISM manufacturing index scaled a 13-year high in September. The index climbed to 60.8% in September from 58.8% in August, scaling the highest level since May 2004. Notably, 17 of the 18 industries reported growth last month, led by textile mills and machinery.

Any reading above 50 indicates increased factory activity, which accounts for 12% of the U.S. economy. The ISM survey, in fact, showed that the manufacturing index has remained above the desired level for the last 13 months. More importantly, the index has maintained an average level of 57.1 till now this year. 

Our Choices

The resurgence in manufacturing has continued interrupted throughout the current year. Encouraging signals from the current administration and an improving global economy have helped to create an atmosphere conducive for such growth.

Investing in manufacturing stocks looks like an extremely prudent option at this point. However, picking winning stocks may prove to be difficult.

This is where our VGM score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score. 

Alcoa Corporation (AA - Free Report) is a producer and seller of alumina, bauxite and aluminum products.

Alcoa has a Zacks Rank #1 (Strong Buy) and a VGM Score of A. The company has expected earnings growth of more than 100% for the current year. The Zacks Consensus Estimate for its current-year earnings increased 6.1% over the last 30 days. The stock has gained 71.8% year to date.

TPI Composites, Inc. (TPIC - Free Report) is a manufacturer and seller of composite wind blades and associated precision molding and assembly systems for the wind energy market.

TPI Composites has a VGM Score of A. The company has expected earnings growth of 41.7% for the current year. The stock has gained 47.4% year to date. The stock has a Zacks Rank #1.

Caterpillar Inc. (CAT - Free Report) is the world’s leading manufacturer of construction and mining equipment, diesel and natural gas engines and industrial gas turbines.

Caterpillar has a Zacks Rank #2 (Buy) and a VGM Score of A. The company has expected earnings growth of 53.8% for the current year. The Zacks Consensus Estimate for its current-year earnings increased 0.8% over the last 30 days. The stock has gained 41.8% year to date.

Kennametal Inc. (KMT - Free Report) is a manufacturer, marketer and distributor of high-speed metal cutting tools, tooling systems as well as wear-resistant parts.

Kennametal has a Zacks Rank #2 and a VGM Score of A. The company has expected earnings growth of 44.8% for the current year. The Zacks Consensus Estimate for its current-year earnings increased 0.2% over the last 30 days. The stock has gained 35.6% year to date.

Packaging Corporation of America (PKG - Free Report) is the fourth largest producer of containerboard and packaging products in the United States. 

Packaging Corporation has a Zacks Rank #2 and a VGM Score of B. The company has expected earnings growth of 24.7% for the current year. The Zacks Consensus Estimate for its current-year earnings increased 0.6% over the last 30 days. The stock has gained 37.9% year to date.