Best Manufacturing Stocks to Buy

This year promises major changes for the manufacturing industry. A number of trends that developed in 2019 are expected to continue through 2020, and the COVID-19 pandemic is sure to have an impact – though exactly what the impact will be is not yet clear.

Investors looking to add manufacturing stocks to their portfolios have a number of factors to consider in choosing the companies that best meet their specific financial goals.

Manufacturing Industry Trends 

Across the industry, three major trends took shape over the past year. First, a number of companies previously known for their expansive, diverse mix of businesses divested and pared down. Instead, they are now focusing on their core operations, with particular attention to simplifying and streamlining workflow.

As part of the move away from sprawling manufacturing conglomerates, companies are realigning to serve defined markets or specific customer segments. When mergers and acquisitions do happen, they are generally designed with a goal of geographical expansion or enhancing target market reach, rather than diversifying product lines.

Next, there is increased attention on the possibilities offered by advanced technology. As a whole, the manufacturing industry is exploring opportunities to incorporate robotics, artificial intelligence, analytics, and cloud computing into workflow. The transition to digital tools is expected to make it easier for manufacturers to flex and adapt quickly to changing market conditions. In addition, they are better able to develop relationships and secure their supply chains and delivery channels through digital technology.

Finally, the percentage of manufacturers committed to integrating renewable energy into production has increased dramatically. More than 25 percent of respondents in a Deloitte survey indicated that green initiatives are a high priority for their organizations.Throughout 2019 and into 2020, these businesses have started to explore opportunities for transitioning to hydro, solar, wind, and geothermal energy sources.

Taiwan Semiconductor Bets On 5G

Taiwan Semiconductor Manufacturing had an excellent 2019, with share prices rising by 57.4 percent year-over-year. The company produces semiconductors for major chip designers, including Qualcomm and Advanced Micro Devices.

Some of this success is due to a strong focus on upgrading manufacturing systems. Management has approved billions in enhancements to support the current 7-nanometer process, and the company is on-track to be ready for the coming move to a 5-nanometer process.

As 5G technology rolls out, Taiwan Semiconductor Manufacturing is well-positioned to supply the semiconductors necessary for high-performance mobile and computing devices.

In short, Taiwan Semiconductor Manufacturing is creating the components required for the on-going global transition to digital technology, which puts it squarely in a rapidly expanding market. While the current pandemic might create short-term losses, long-term, the company’s outlook is quite good.

IPG Photonics Is The Laser Leader

Flexible fiber lasers make it possible to transmit laser energy over longer distances with more precision and less loss. Better yet, they are less susceptible to interference, adding to the level of precision.

IPG Photonics Corporation manufactures the fiber lasers – specifically optical fiber lasers – which are critical to advanced telecommunications technology. IPG’s components are also used in a variety of medical equipment, as well as certain materials processing applications.

While fiber lasers have critical applications and IPG is considered an industry leader, the company struggled through much of 2019.

Much of the pressure was the result of heavy competition from Chinese manufacturers, which resulted in a total revenue decline of 10 percent year-over-year.

The good news is that total optical power shipped for the year increased 14 percent year-over-year, demonstrating that there is growing demand for IPG product.

When the coronavirus gained a foothold in China at the beginning of 2020, IPG’s sales dropped substantially. The current pandemic has made matters worse, and IPG stock was deeply impacted by the market losses in early March.

Share prices declined 11 percent on March 11th alone. Nonetheless, most analysts expect this stock to rebound, though it might take some time. Investors with a long-term approach can acquire shares at a discount now, then hold until the market recovers.

Apogee Enterprises

The current market may not be particularly good for construction and development, but that’s likely a short-term problem. When buildings start going up again, Apogee is ready for action.

This company manufactures and installs the aluminum and glass framing systems that form the foundation of commercial buildings, and it was a leader in the market after the 2009 recession. In the six years that followed, share prices grew 300 percent.

Unfortunately, signals of a coming recession stifled the company’s growth in the second half of the decade, and there were delays in a number of large projects that Apogee was relying on to boost revenue.

Because those projects didn’t materialize, Apogee’s most recent quarterly results were disappointing. Earnings guidance was downgraded throughout 2019, creating a further decline in share prices.

The current market conditions are likely to have a significant impact on Apogee in the short-term. However, what goes down must come up. Investors may wish to purchase Apogee shares now to diversify portfolios focused on long-term growth.

Best Manufacturing Stocks: The Bottom Line

Overall, 2020 predictions for the manufacturing industry were guarded. Analysts noted that there would be a variety of challenges to consider, including public policy developments, staffing difficulties, and volatile supply costs.

The dramatic economic consequences of the COVID-19 pandemic have changed all of that, and the long-term outcome is not yet known. In the meantime, smart investors are taking the opportunity to acquire shares of high-quality stocks at bargain prices. This may be an unexpected chance to round out your portfolio with some of the best manufacturing companies in the business.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.