4 Top Gainers From the Rise in New Durable Goods Orders

Zacks Equity Research
·5-min read

Durable goods orders picked up in the third quarter, signaling that activity in the U.S. manufacturing sector is seeing steady expansion after being hit by COVID-19 related lockdowns in the early part of the year. Per the latest data released by the U.S. Census Bureau, new orders for durable goods increased for the fifth consecutive month in September, witnessing growth of 1.9%, following a revised increase of 0.4% in August and 11.8% in July, reflecting significant easing of disruptions in supply chains and return of demand.

Notably, third-quarter GDP numbers also mirrored this upturn. According to the “advance” estimate released by the Bureau of Economic Analysis, GDP for the July-September quarter increased at an annual rate of 33.1%, following the record plunge of 31.4% in the second quarter.

The recovery was aided by a timely fiscal stimulus package by the government to help businesses tide over the pandemic along with the Fed’s accommodative monetary policy measures aimed at reviving the economy. Reflective of these measures, within the segments of the durable goods orders, nondefense capital goods excluding aircraft or core capital goods orders also saw a recovery albeit at a moderating pace. New orders rose 2.6%, 2.1% and 1% for the months of July, August and September, respectively, indicating that investment plans in business equipment remained steady during the third quarter.

Moreover, industrial demand also saw a revival during the quarter as new orders for primary metals saw an uptick of 4% in September, following 1.6% and 1.8% gains in July and August, respectively. Meanwhile, new orders for communications equipment also increased during the quarter. Although growth moderated during the course of the quarter, following the 10.3% increase seen in July, August and September still saw growth of 2.7% and 1.4%, respectively. This suggested the changing needs of consumers as the pandemic has led them to mostly stay indoors and be more dependent on technology for communication.

Reflecting rising new orders for durable goods owing to potential demand, retail sales also witnessed a turnaround during the third quarter. Per the data released by the Commerce Department, the advance estimates of the U.S. Retail and Food Services showed that retail sales jumped 3.6% year over year during the July-September quarter as stores and businesses gradually reopened following the lockdown.

Corroborative of this, consumer spending in August rose for the fourth successive month. The Bureau of Economic Analysis reported that personal consumption expenditure rose 1% in August, following a 1.5% increase in July.

4 Stocks to Buy

The U.S. economy made a strong return in the third quarter as indicated by increasing orders for durable goods. Orders for core capital goods picked up along with primary metals and communications equipment. Hence, it will be prudent now to invest in stocks that stand to benefit from this uptick and are fundamentally sound to witness growth going forward. We have handpicked four such stocks that carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

AGCO Corporation AGCO manufactures and distributes equipment and replacement parts related to agriculture in the United States. The company, currently, has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings increased 5.9% over the past 60 days. The company’s expected earnings growth rate for next year is 33.3%. Its shares gained 37.6% in the July-September quarter.

Calix, Inc. CALX provides cloud and software platforms, along with its subsidiaries, and services and systems which are required for delivering the unified access network in the United States. The company, currently, has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings increased 67.3% over the past 60 days. The company’s expected earnings growth rate for the next quarter is over 100%. Its shares gained 22.5% in the July-September quarter.

Gerdau S.A. GGB provides products and services related to steel in the United States, offering semi-finished products, common long rolled products, etc. The company, currently, has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings increased 17.6% over the past 60 days. The company’s expected earnings growth rate for the current year is 11.1%. Its shares gained 27.1% in the July-September quarter.

Sleep Number Corporation SNBR, with its subsidiaries, manufactures, designs, markets, retails sleep solutions and provides related services in the United States. The company, currently, has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings increased 48.7% over the past 60 days. The company’s expected earnings growth rate for the current year is 50.4%. Its shares gained 17% in the July-September quarter.

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