A peek into fourth-quarter 2015 earnings clearly shows how uncertain global economic conditions played spoilsport for the industrial stocks. Macro headwinds were characterized by fluctuating currency movements, weakening economic conditions, particularly in the formerly fast-growing markets like China, and soft commodity prices.
As on Feb 5, roughly 62.2% of all S&P 500 companies have released their results for the Oct-Dec quarter. Earnings have declined 5.7% year over year, while revenues have fallen 5.2%.
Considering the current headwinds, overall bottom-line expectations for the S&P 500 companies are worse than the initial numbers. Currently, earnings are projected to fall 6.1% in the fourth quarter, poorer than a 2.6% decline recorded in the previous quarter. Revenues are anticipated to decrease 3.9%, better than the decline of 6.2% recorded in third-quarter 2015.
What's in Store for the Industrial Products Sector This Quarter
Market conditions remained unfavorable for industrial equipment makers in the first three quarters of 2015, and were no different in the last quarter as well. Per the Federal Reserve report, industrial production in the u.s. declined 3.4% year over year due to a fall in mining and utilities outputs in fourth-quarter 2015.
Another matter of concern is the weakening export demand for the U.S.-manufactured machinery. According to the U.S. Census Bureau, export demands for U.S. machinery fell 2.5% year over year in 2015. Shipments for farm machinery fell 39.2%; while that for mining and industrial declined 36.4% and 1%, respectively. New machinery orders were down 7.2%, while order backlog decreased 8.9%.
As of Feb 5, roughly 68.2% of industrial products stocks in the S&P 500 Group reported results for the fourth quarter, recording decline of 18.5% and 12.4% in earnings and revenues, respectively. Taking into consideration the prevalent headwinds, earnings for the Industrial Products sector are anticipated to decline 18% in the quarter; while revenues will likely fall 11.9%. Amid such an uncertain environment, choosing the right stocks with a potential to beat earnings estimates can be a daunting task.
Guide to Select the Right Stock
The Industrial Products sector includes containers & glass, industrial products & services, machinery-electrical, machinery and pollution control industries. In this diversified sector, stocks with high investment rankings can be of interest to investors seeking exposure in the sector. But it is advisable to choose stocks with a favorable Zacks Rank of #1 (Strong Buy), #2 (Buy) or #3 (Hold) and a positive Earnings ESP (the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate), as these two factors increase the probability of a stock surprising estimates in the quarter.
Below we have listed four Industrial Products stocks, currently equipped with the right combination of elements to post an earnings beat for Oct-Dec quarter.
