In this article, we will look at the 10 manufacturing stocks at risk as consumer spending and orders decline. If you want to find similar stocks that are vulnerable to a decline in consumer spending, you can also take a look at 5 Manufacturing Stocks at Risk as Consumer Spending, Orders Decline.
The U.S. has shown two consecutive quarters of negative GDP growth, which is alarming since it fits the technical definition of a recession. Supply bottlenecks, inventory gluts, high inflation, and rising interest rates are distressing both consumers and producers alike. Reuters reported that according to data from the Institute for Supply Management, U.S. manufacturing activity declined less than originally anticipated in July. The July 2022 manufacturing PMI registered 52.8%, down 0.2% from June 2022. However, according to experts at ISM, this reading indicates that the overall economy grew in July, the 26th consecutive month since April and May of 2020. Economists at Reuters expected the manufacturing PMI to fall to 52.0%, lower than its June 2020-low of 52.4%.
According to ISM, eleven manufacturing industries reported growth in July. The biggest manufacturing industries that reported moderate to strong growth in July were petroleum & coal products, computer & electronic products, transportation equipment, and machinery. Seven manufacturing industries reported a contraction in July: wood products, furniture & related products, paper products, miscellaneous manufacturing, fabricated metal products, food, beverage & tobacco products, and chemical products.
Reuters reported that high inflation and inventory gluts were top priority concerns for manufacturing businesses that reported slowing order activity. According to ISM’s report, the New Orders Index recorded a reading of 48%, 1.2% lower than 49.2% in June. Seven manufacturing industries reported experiencing a decline in new orders in July, among which were furniture & related products, fabricated metal products, chemical products, and machinery. Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, noted that “Backlogs continued to sag due to the weakness in new orders.”. Reuters anticipates a slowdown in manufacturing activity ahead, noting that the New Orders Index has registered two consecutive contractions and order backlogs continue to sag. The ISM’s Backlog of Orders Index reported a reading of 51.3% in July, down 1.9% from its June reading of 53.2%.
Some of the biggest companies that are at a high risk of losing value as consumer spending and orders decline are The Boeing Company (NYSE:BA), Builders FirstSource, Inc. (NASDAQ:BLDR), and General Motors Company (NYSE:GM).
Photo by Lenny Kuhne on Unsplash
Our Methodology
To determine the 10 manufacturing stocks that are at risk as consumer spending and orders decline, we reviewed manufacturing industries that make discretionary products for consumers. As the economy slows down, consumers are less likely to spend on discretionary products which include expensive smartphones, high-end personal computers, and luxury automobiles, among others. After narrowing down the companies that have reported slowing order activity, we ranked our picks in increasing order of hedge fund holders.
Along with each stock, we have mentioned analyst ratings and the hedge fund sentiment. The hedge fund sentiment was derived from Insider Monkeys database, which as of Q2 2022 tracks 895 elite hedge funds.
10 Manufacturing Stocks at Risk as Consumer Spending, Orders Decline
10. Airbus SE (OTC:EADSY)
Number of Hedge Fund Holders: N/A
On July 27, Airbus SE (OTC:EADSY) reported that its revenue for the second quarter of 2022 fell to EUR 12.81 billion from EUR 14.18 billion in Q2 2021. The company reported that it delivered 46 planes in July, down from 60 planes in June. The company also slashed its delivery guidance and said that it expects full-year 2022 deliveries to fall to 700 commercial aircraft, down from its prior expectations of delivering 720 aircraft by the end of 2022. The company’s adjusted EBIT declined by 31% year over year and amounted to EUR 1.38 billion for the second quarter of 2022. Airbus SE (OTC:EADSY) reported that lower commercial aircraft deliveries caused its weak performance for the quarter. Its net income for the quarter declined by 63% year over year and amounted to EUR 682 million.
As of August 19, Airbus SE (OTC:EADSY) has sank more than 20% year to date.
On July 28, JPMorgan analyst David Perry slashed his price target on Airbus SE (OTC:EADSY) to EUR 175 from EUR 180 and maintained an Overweight rating on the shares.
Like The Boeing Company (NYSE:BA), Builders FirstSource, Inc. (NASDAQ:BLDR), and General Motors Company (NYSE:GM), Airbus SE (OTC:EADSY) can suffer significantly from high inflation and declining consumer spending.
9. Toll Brothers, Inc. (NYSE:TOL)
Number of Hedge Fund Holders: 29
Toll Brothers, Inc. (NYSE:TOL) designs, builds, markets, and arranges finance for a range of detached and attached homes in luxury residential communities in the United States. This August, Toll Brothers, Inc. (NYSE:TOL) slashed its guidance for full-year deliveries and said that the company expects full-year deliveries of up to 10,300 homes, down from 11,500 homes. The company said that labor shortages, supply bottlenecks, and rising mortgage rates are the reason for its weaker outlook for the second half of 2022.
This August, BofA analyst Rafe Jadrosich downgraded Toll Brothers, Inc. (NYSE:TOL) to Neutral from Buy and reiterated his price target of $49. As of August 19, has lost over 30% of its value year to date.
At the end of Q2 2022, 29 hedge funds held stakes in Toll Brothers, Inc. (NYSE:TOL) worth $625.81 million. This is compared to 29 positions in the previous quarter with stakes worth $615.99 million.
As of June 30, Greenhaven Associates owns roughly 5.35 million shares of Toll Brothers, Inc. (NYSE:TOL) and is the largest shareholder in the company. The investment covers 5.15% of Greenhaven Associates’ 13F portfolio.
8. Caterpillar Inc. (NYSE:CAT)
Number of Hedge Fund Holders: 45
Caterpillar Inc. (NYSE:CAT) is a leading manufacturer of construction and mining equipment. One of the company’s biggest end markets is China, where a real estate crisis is causing homebuyers to cancel orders and their mortgage payments. On August 2, Caterpillar Inc. (NYSE:CAT) announced that its revenue for the fiscal second quarter of 2022 amounted to $14.25 billion and fell short of Wall Street consensus by $135.83 million.
With a housing slowdown in the U.S. and a mortgage crisis in China, Caterpillar Inc. (NYSE:CAT) is vulnerable to order cancellations and can lose significant market share as inflation eats away at the purchasing power of the consumer.
Wall Street is bearish on Caterpillar Inc. (NYSE:CAT). On August 3, Bernstein analyst Chad Dillard downgraded Caterpillar Inc. (NYSE:CAT) to Market Perform from Outperform and reiterated his price target of $195. The analyst sees a significant slowdown in order growth in the second half of 2022, and negative order growth into 2023. Dillard sees negative earnings revisions in 2023 and 2024.
As of June 30, Fisher Asset Management owns over 7.5 million shares of Caterpillar Inc. (NYSE:CAT) and is the top shareholder in the company.
At the end of the second quarter of 2022, 45 hedge funds held stakes in Caterpillar Inc. (NYSE:CAT) worth $3.25 billion. This is compared to 54 positions in the previous quarter with stakes worth $4.01 billion. The hedge fund sentiment for the stock is negative.
Here is what Diamond Hill Capital had to say about Caterpillar Inc. (NYSE:CAT) in its first-quarter 2022 investor letter:
“We also initiated a position in Caterpillar (NYSE:CAT), one of the world’s leading manufacturers of construction and mining equipment. It’s a company we know well, as we have owned it in our large cap portfolio for quite some time. Recent share price weakness provided an opportunity for us to add it to our large cap concentrated portfolio at an attractive discount to our estimate of intrinsic value. We believe Caterpillar stands to benefit from increased capital investment supported by a healthier/recovering end market environment, particularly in construction and mining.”
7. Ford Motor Company (NYSE:F)
Number of Hedge Fund Holders: 46
On August 9, Ford Motor Company (NYSE:F) announced that it is raising the retail price of its F-150 Lightning electric truck due to “significant material cost increases and other factors”. The company hiked prices on different variants of the F-150 Lightning by a range between 7% and 18%. As of August 19, Ford Motor Company (NYSE:F) has lost 27.06% year to date.
On July 5, Ford Motor Company (NYSE:F) reported that it sold roughly 484,000 new vehicles in the second quarter of 2022, up 1.8% year over year. However, as the company increases the MSRP on its vehicles, it will take away consumers’ purchasing power and the stock can suffer from declining orders and consumer spending.
On August 2, Citi analyst Itay Michaeli raised his price target on Ford Motor Company (NYSE:F) to $16 from $15 but reiterated a Neutral rating on the shares. The analyst also closed his “90-day Upside Catalyst Watch” on Ford Motor Company (NYSE:F).
At the close of Q2 2022, 46 hedge funds were long Ford Motor Company (NYSE:F) with stakes worth $608.76 million. This is compared to 46 positions in the previous quarter with stakes worth $1.23 billion.
As of June 30, D E Shaw is the most prominent investor in Ford Motor Company (NYSE:F) with stakes worth $257.63 million. The investment covers 0.3% of D E Shaw’s 13F portfolio.
Baron Funds mentioned Ford Motor Company (NYSE:F) in its first-quarter 2022 investor letter. Here is what the firm had to say:
“Ford (NYSE:F) is another example of typical industrial manufacturing business executive mindsets. The April 18, 2022, Bloomberg Businessweek cover story features Ford CEO Jim Farley behind the wheel of an electrified Ford F-150 Lightning. The article is titled, “Hey Elon, THIS is a truck.” I thought the article was terrific. One idea especially stood out to me. Since the F-150 is such a popular vehicle, it “argued for a gradual approach to electrification. Essentially the company retrofitted an existing F-150 with an electric powertrain rather than develop an entirely new truck.” No all-in financial and operation bet by this company on electrification.”
Other stocks that are at risk of losses from declining consumer spending and orders include The Boeing Company (NYSE:BA), Builders FirstSource, Inc. (NASDAQ:BLDR), and General Motors Company (NYSE:GM).
6. Dell Technologies Inc. (NYSE:DELL)
Number of Hedge Fund Holders: 49
On August 25, Dell Technologies Inc. (NYSE:DELL) announced earnings for the fiscal second quarter of 2023. The company reported a revenue of $26.43 billion, short of Wall Street expectations by $41.42 million. Dell Technologies Inc. (NYSE:DELL) reported that its consumer revenue sank by 9% in the quarter to 3.3 billion. Consumer sales account for roughly 60% of the company’s revenue. The company signalled a further decline in personal computer orders as consumers postpone their electronic device expenses. The company’s leadership views fiscal third-quarter revenue from personal computers to shrink further by a range of 17% to 19%. The company expects fiscal third-quarter revenue to range between $23.8 billion and $25 billion, down 8% year over year, and behind Wall Street expectations of $26.4 billion. The company expects flat revenue growth for fiscal 2023.
Wall Street has turned bearish on Dell Technologies Inc. (NYSE:DELL). On August 26, Cowen analyst Krish Sankar slashed his price target on Dell Technologies Inc. (NYSE:DELL) to $45 from $58 and reiterated a Market Perform rating on the shares. The analyst emphasized on the company’s weak outlook for the second half of fiscal 2023 to support his bear case. This August, Morgan Stanley analyst Erik Woodring cut his price target on Dell Technologies Inc. (NYSE:DELL) to $54 from $56 and maintained an Equal Weight rating on the shares. The analyst contended that weakening demand in the company’s consumer and commercial markets has caused him to slash his fiscal 2023 earnings estimates by a range between 3% and 4%.
At the end of Q2 2022, 49 hedge funds were long Dell Technologies Inc. (NYSE:DELL) with stakes worth $1.13 billion. This is compared to 59 positions in the preceding quarter with stakes worth $1.94 billion. The hedge fund sentiment for the stock is negative.
As of June 30, Millennium Management owns 3.72 million shares of Dell Technologies Inc. (NYSE:DELL) and is the largest shareholder in the company.
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Disclosure: None. 10 Manufacturing Stocks at Risk as Consumer Spending, Orders Decline is originally published on Insider Monkey.
