U.S. manufacturing activity remained in expansion territory for the eighth consecutive month in August, despite persistent trade uncertainty, elevated input costs and geopolitical tensions. Three of four key demand indicators, New Orders, Backlog of Orders and New Export Orders, remained in expansion. Meanwhile, the Customers’ Inventories Index stayed in “too low” territory or below 50%, which is generally viewed as supportive of future production.
The improving manufacturing backdrop is also supporting the Industrial Products sector, which is witnessing positive estimate revisions for the third quarter. Per the latest Earnings Trends report, the sector is expected to deliver earnings growth of 12.9% in the third quarter and 11.6% in 2026. It is one of the nine sectors expected to post double-digit growth this year. Against this backdrop, it would be ideal to invest in industrial stocks like Caterpillar CAT, Kubota KUBTY, Nordson NDSN, Zebra Technologies ZBRA and Watts Water Technologies WTS.
Manufacturing Activity Remains in Expansion
The ISM Manufacturing PMI was 54.6% in August, dipping one percentage point from July’s 55.6%. Despite this, August marked the eighth consecutive month of manufacturing growth, following a 10-month period of contraction. Despite the moderation, the sector remained in expansion for the eighth straight month following 10 consecutive months of contraction. Five of the six largest manufacturing industries expanded, led by transportation equipment, petroleum and coal products, computer and electronic products, machinery, and food, beverage and tobacco products.
The New Orders Index declined to 53.7% from 56.7% but remained in expansion for the eighth consecutive month. The Production Index held at a strong 58.3%, extending its expansion streak to 10 months. The Backlog of Orders Index was 51.8%, while new export orders edged up to 53.2%, expanding for the second consecutive month.
The Employment Index slipped to 51.2% from 52.8%, but remained in expansion territory for the second consecutive month. Only one of the six largest manufacturing industries reported higher employment, pointing to a more cautious approach toward hiring across the sector. Still, the overall employment reading suggests that manufacturers are not yet broadly cutting workforce levels as production remains healthy.
The Inventories Index was 50.6% in August, down 0.6 percentage points compared with 51.2% in July. The Customers’ Inventories Index rose to 42.8% in August from 40.7% in July, and remained in “too low” territory in August. This is generally positive for future production as manufacturers may need to replenish inventories as demand improves.
Cost pressures continue to challenge manufacturers. The Prices Index remained elevated at 71.1%, indicating higher raw-material prices for the 23rd consecutive month. Steel, aluminum, copper, electrical components and electronic components were among the materials reported as rising in price or facing supply constraints. Tariffs and geopolitical tensions are adding to cost pressures and could weigh on margins. In response, industry participants are focusing on pricing actions, cost optimization, productivity gains and diversification of supplier networks to offset these pressures.
Outlook Remains Constructive, but Risks Persist
Overall, the trend so far this year points to a continued manufacturing recovery. Lean customer inventories, expanding new orders and sustained production provide a positive foundation for future activity. At the same time, elevated input costs, tariffs, supply-chain challenges and geopolitical uncertainty could limit the pace of improvement. ISM's 2026 forecast calls for 8.4% growth in manufacturing revenues, 4.9% growth in capital expenditures and a 9.7% increase in production capacity, supporting the case for industrial stocks positioned to benefit from renewed manufacturing investment.
5 Industrial Products Stocks to Buy
Caterpillar: The company ended the second quarter of 2026 with a record backlog of $72 billion, 92% higher than last year. It is positioned to benefit from several secular growth trends, including U.S. infrastructure spending, mining demand related to the energy transition, automation adoption, data center expansion and sustainability investments. To capitalize on rising power-generation and oil-and-gas demand, CAT will restart production of its 10-megawatt gas engine platform. It plans to bring about 1.5 gigawatts of capacity back online. It is also expanding turbine capacity and has repurposed a 250,000-square-foot facility in Wamego, KS. CAT is simultaneously investing in services, e-commerce, sustainability, electrification and other digital initiatives.
The Zacks Consensus Estimate for Caterpillar’s current-year earnings moved up 9.7% in the past 60 days. The consensus mark indicates year-over-year growth of 43.4%. The company has a trailing four-quarter earnings surprise of 18.1%, on average. Caterpillar has an estimated long-term growth of 21.1% and currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Kubota: The company is benefiting from strength in construction equipment, particularly in North America, along with improving prospects in Europe and continued growth in India. Disciplined fixed-cost management and profitability improvement measures are expected to support profitability. Agricultural machine automation is one of the key pillars of these initiatives. The company is expanding its product lineup, adding a variety of attachments to meet customer needs.
The Zacks Consensus Estimate for Kubota’s earnings for fiscal 2026 has moved up 36% over the past 60 days and suggests year-over-year growth of 40%. The company has a trailing four-quarter earnings surprise of 41.7%, on average. It has an estimated long-term earnings growth rate of 10% and currently carries a Zacks Rank #2 (Buy).
Nordson: The company is poised to gain from its diversified business structure, which helps mitigate the adverse impact of weakness in one end market with strength across the others. Over time, Nordson has been capitalizing on acquisitions by penetrating unexplored markets and expanding its product lines. Nordson remains committed to rewarding its shareholders through dividend payments and share buybacks.
The Zacks Consensus Estimate for Nordson for fiscal 2026 earnings has moved up 2% over the past 60 days and suggests year-over-year growth of 15.6%. The company has a trailing four-quarter earnings surprise of 32.4%, on average. It has an estimated long-term earnings growth rate of 13% and currently carries a Zacks Rank of 2.
Zebra Technologies: The company is benefiting from broad demand across retail, manufacturing and healthcare, with mobile computing, printing, machine vision and RFID supporting growth across both segments. Its integrated hardware, software and services portfolio is deepening customer adoption of automation and AI-enabled workflows, while Elo Touch and Photoneo expand its addressable opportunities. Healthy cash generation continues to support share repurchases and investment, while device upgrade cycles and growing software adoption strengthen the longer-term outlook. Its expanding transportation and logistics pipeline also supports future growth opportunities.
The Zacks Consensus Estimate for Zebra Technologies for fiscal 2026 earnings has moved up 9% over the past 60 days. The estimate suggests year-over-year growth of 28.2%. The company has a trailing four-quarter earnings surprise of 15.5%, on average. It currently carries a Zacks Rank of 2.
Zebra Technologies Corporation Price and Consensus
Zebra Technologies Corporation price-consensus-chart | Zebra Technologies Corporation Quote
Watts Water Technologies: The company completed five acquisitions in 2025 to broaden its product set, extend market reach and increase nonresidential exposure. The acquired businesses are performing well and remain on track to achieve or exceed targeted synergies through the One Watts performance system. Watts Water's second-quarter 2026 results benefited from favorable pricing, higher volumes and data center demand, which helped drive record sales, operating income and earnings per share. Data center cooling is emerging as a growth avenue as liquid cooling adoption, new products and broader customer relationships expand the opportunity. A healthy balance sheet supports capacity investments, selective M&A and shareholder returns.
The Zacks Consensus Estimate for Watts Water Technologies for fiscal 2026 earnings has moved up 4.7% over the past 60 days and the estimate suggests year-over-year growth of 20.5%. The company has a trailing four-quarter earnings surprise of 10.4%, on average. It has an estimated long-term earnings growth rate of 8% and currently carries a Zacks Rank of 2.
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Caterpillar Inc. (CAT): Free Stock Analysis Report
Nordson Corporation (NDSN): Free Stock Analysis Report
Watts Water Technologies, Inc. (WTS): Free Stock Analysis Report
Kubota Corp. (KUBTY): Free Stock Analysis Report
Zebra Technologies Corporation (ZBRA): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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