In this piece, we will take a look at the 10 best manufacturing stocks to buy according to analysts.
2024 is seeing a momentous shift in global manufacturing trends that have cemented themselves over the past three decades. After China opened its economy in 1978, its sizeable population coupled with low living standards that resulted in lower wages attracted Western firms to its shores. Fast forward to 2024 and the biggest Western companies all rely on Chinese firms for their mass production needs and the disputed region of Taiwan houses the world’s biggest contract chip manufacturer.
However, now, these trends are reversing. Prior to and leading to the coronavirus pandemic, China’s share of global manufacturing rose to 31% in 2021 from 26% in 2017, and during the same time period, the Chinese share of the world’s manufactured exports jumped to 21% from 17%. These trends came as global manufacturing dropped because of the pandemic, but their reversal started in 2023 when data from the first quarter revealed that the share of Chinese made products in US imports stood at 13.3%. This marked a sharp decline from 2017’s 21.6% and was the lowest figure since 2003. These trends were also visible in the Kearney Reshoring Index, which indicates that US imports from low cost Asian countries declined by $143 billion in 2023, with Mexico crossing mainland China as the largest exporter to America for the first time since 2013 through its 32% growth.
The US and China are decoupling, and this is leading to some interesting, obvious, and unpredictable dynamics. First of all, during the same year, China’s share of American imports dropped, and US manufacturing companies grew their construction projects that covered a wide variety of industries such as food and beverage, chemicals, and chip production. Data shows that in the 12 months ending in August 2023, construction spending for manufacturing facilities surged by a whopping 80%. Mind you, this came at a time when interest rates had soared to decade high levels as the Federal Reserve battled high interest rates. Electronics led all sub categories by marking a jump of 237%, while other non residential construction spending grew by a rather paltry 6%.
While we’ll get to the reasons behind this surge in electronics in a bit, the US is not the only country in North America that’s seeing a resurgence in manufacturing spending. Right down the Southern border, Mexico is witnessing a similar boom. Foreign Direct Investment (FDI) data outlines that capital inflows in Mexico are expected to grow 10% annually to touch $650 billion by 2027. This is fueled by nearly 500 foreign companies either setting up or increasing their presence, including big ticket US automakers that have traditionally relied on their Mexican plants for lower costs.
However, these near shoring trends aren’t driven only by American companies, as Chinese companies are also eager to move to Mexico and benefit from the country’s trade ties and proximity to America. This is because as of Q3 2022, within the 5 million square meters of land acquired by new companies, 80% belonged to Chinese companies with American firms coming in second place at 14%. While the impact of this exodus on the Chinese economy is hard to quantify, research suggests that it could lead to anywhere between 1.3 million to 1.9 million jobs being lost in China.
Additionally, while the Chinese economy is slowing down due to the effect of the post pandemic policies, global growth expectations are also expected to stay muted. We’re in a historic era of high interest rates that raise the costs of setting up new plants. According to the IMF, global economic growth will remain muted in 2024 and 2025 and continue to sit at 3.2% during both years. Growth in advanced economies is expected to slightly pick up to 1.7% in 2024 over 2023’s 1.6%, while the developing world’s growth can slow down to 4.2% this year from last year’s 4.3%.
This decoupling between China and the West is the clearest in high growth and high technology industries of electric vehicles and semiconductor fabrication. Within the US, the Biden Administration’s CHIPS and Science Act and the Inflation Reduction Act (IRA) have authorized $280 billion and $500 billion in spending and tax cuts, respectively, to spearhead semiconductor fabrication and clean energy technologies in America. The IRA in particular incentivizes EV sourcing and assembly in America. For an EV to qualify for tax credits up to $7,500, its manufacturer must assemble the final product in America and source a certain portion of its raw materials from North America or countries that have trade agreements with the U.S. Additionally, not only does the CHIPS Act prevent companies that use its funds from using the profits from facilities set up with the funds to set up plants in countries hostile to America, but it also incentivizes global and local companies to set up their factories in America.
These seismic-level shifts occur just as Europe increased tariffs on Chinese EVs to as much as 37.6%, a striking blow delivered precisely when Chinese EVs were soaring in popularity on the continent. The EV industry isn’t the only one that benefited from the IRA. On the act’s first anniversary in July 2023, more than 170,000 jobs were added across America along with 272 new clean energy projects for $278 billion in new investments. These include an expansion of the world’s largest wind turbine factory in Pueblo, Colorado, Minnesota’s largest solar power plant, and America’s first facility to make polisilicon based solar cells.
As the winds of manufacturing continue to shift, we decided to check what manufacturing stocks are on the analysts’ radar.
An experienced technician inspecting a diesel particulate air filter in a clean technology factory.
Our Methodology
To make our list of the best manufacturing stocks according to analysts, we ranked the top 50 holdings of iShares’ synonymous named ETF and added some stocks of our own with a sizeable manufacturing presence in America by the average analyst share price target upside and picked out the top stocks.
We also mentioned the number of hedge funds that had bought these stocks during the same filing period. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10. Vontier Corporation (NYSE:VNT)
Number of Hedge Fund Investors in Q1 2024: 30
Average Analyst Share Price Upside: 17%
Average Analyst Share Price Target: $46.08
Vontier Corporation (NYSE:VNT) is a technology company that builds and sells vehicle repair equipment, provides equipment and software for fueling services, and provides products for EV charging. This provides the firm with a wide moat that leaves it open to growth in US EV manufacturing, infrastructure upgrades, and any growth in the use of conventional cars as well.At the same time, it has to carefully plan its spending, and any wrong moves in risky areas such as EV charging infrastructure could leave Vontier Corporation (NYSE:VNT) with sunk costs and few avenues to recover them. Similarly, since it’s an industrial technology company, it has to carefully manage its margins which drive share price to an extent. Additionally, the diversified nature of its business model means that Vontier Corporation (NYSE:VNT) can benefit quite a lot from government infrastructure spending as we explained in detail in our intro.
One such initiative is the National Electric Vehicle Infrastructure (NEVI), and here’s what Vontier Corporation (NYSE:VNT)’s management had to say on this front during its Q1 2024 earnings call:
About $400 million of the NEVI funding have been awarded so far, about $7.5 billion. So it’s very early innings. If you track that and follow that, you’re able to see that 60% of the awards so far have gone to convenience store operator footprints. And I think that shows really the viability of the convenience store in a multifuel future. And what’s really interesting too, if you peel the onion even further, you’ll notice that we’re also picking up really good share because we provide network software to charge point operators. Whether it’s a convenience store operator like Circle K that chooses to be a charge point operator or Shell that chooses to be a charge point operator or charge point operators like EVgo or Francis Energy examples in the United States, of course — United States centric.
These folks can either decide to develop their own network software or they can decide to outsource us. And we are the leading provider when folks look at outsourcing that. And I think it’s because our solution really works well with high reliability. And so we’ve got about 60,000 plugs under management for high-speed charging. And just to put that in comparison, that’s about the number of charge points or charge plug — excuse me, not charge points. That’s the number of charge plugs that Tesla has. So we’ve got about the same number of high-speed charging points under management. And I think we see a multifuel future with a lot of different charging operators that are going to grow worldwide. So I think we’re really positioned well to pick up and be an indirect beneficiary of the NEVI funding because we are a supplier to that.
9. Intel Corporation (NASDAQ:INTC)
Number of Hedge Fund Investors in Q1 2024: 77
Average Analyst Share Price Upside: 17%
Average Analyst Share Price Target: $38.41
Intel Corporation (NASDAQ:INTC) is the only non ETF stock on our list of the top analyst manufacturing stocks. It is the world’s largest pure play semiconductor manufacturer in the world. As of March 2024, Intel Corporation (NASDAQ:INTC) had received $8.5 billion in CHIPS Act subsidies, through which it plans to not only focus on manufacturing the next generation chips in America but also shift its business model to contract services. Through Intel Foundry, its contract manufacturing division, Intel aims to build chips for other firms like NVIDIA, and its sizable and solid footing in America lends it key competitive advantages in terms of economies of scale and supply chain strength. However, the contract manufacturing industry is cut throat, and if Intel Corporation (NASDAQ:INTC) slips up and lags behind competitors, then it could struggle to recover the sizable investments required to set up the new facilities.
Clearbridge Investments mentioned Intel Corporation (NASDAQ:INTC) in its Q2 2024 investor letter. Here is what the fund said:
“One example of a perceived AI loser temporarily cast aside was the Strategy’s top detractor for the quarter, Intel, whose shares declined as it put out financial targets for 2027 that were below Wall Street expectations, and also noted that demand for its core PC and server chips remained depressed. We take a contrarian view of Intel and do not think it will be an AI loser, but rather see underappreciated opportunity as AI PCs ramp over the next few quarters in enterprises, where Intel has a stronghold. We also believe that the company’s technology roadmap remains intact, which we believe will lead to a stabilization in market share in its core PC and server markets. Both markets remain depressed, but we believe that aging infrastructure and the ongoing growth of IT workloads will lead to a cyclical recovery in both markets, which should benefit shares.”
