3 Manufacturing Tools Stocks to Watch Despite Industry Headwinds

The Zacks Manufacturing-Tools & Related Products industry faces significant headwinds, including a contracting manufacturing sector with a June ISM PMI of 49%, persistent supply-chain disruptions, rising costs, and skilled labor shortages, contributing to its underperformance and negative earnings outlook. Despite these challenges, companies are focusing on cost-control measures and product innovation to maintain competitiveness. Core & Main (CNM), Stanley Black & Decker (SWK), and Kennametal (KMT) are highlighted as well-positioned firms, leveraging specific demand drivers and operational efficiencies to navigate the difficult market conditions.

Analysis

The Manufacturing-Tools & Related Products industry is confronting significant macroeconomic headwinds, underscored by four consecutive months of contraction in the manufacturing sector, with the June ISM Purchasing Manager's Index at 49%. This cyclical weakness is compounded by a persistent decline in new orders, which fell for the fifth straight month, and ongoing supply-chain issues, evidenced by seven months of slower supplier deliveries. These pressures have directly impacted the industry's financial outlook, leading to a 7.3% downward revision in aggregate earnings estimates for 2025 and causing the industry's stock performance to lag both its sector and the S&P 500 over the past year with a 7.7% gain. Reflecting these challenges, the industry trades at a forward P/E of 17.92X, a discount to both the broader market and its own historical median. Despite the bleak industry-wide forecast, specific companies are navigating the environment effectively. Core & Main (CNM) is benefiting from infrastructure demand and acquisitions, reflected in a 1.2% upward earnings revision and a 25.3% share price increase over the past year. Stanley Black & Decker (SWK) is leveraging its DEWALT brand momentum and cost-reduction programs, leading to a 27.3% stock rally in the last three months. Similarly, Kennametal (KMT) is capitalizing on improving aerospace demand and has consistently beaten earnings estimates by an average of 27% over the last four quarters.

Key Decisions for Investors

• Given the contracting manufacturing sector, evidenced by a June ISM PMI of 49%, and negative industry-wide earnings revisions, investors should exercise caution and avoid broad exposure to the manufacturing tools sector.
• Focus on individual companies demonstrating resilience through distinct catalysts, such as Core & Main's (CNM) leverage to infrastructure demand, Stanley Black & Decker's (SWK) cost optimization efforts, and Kennametal's (KMT) exposure to the aerospace recovery.
• Monitor key macroeconomic data, particularly the ISM New Orders Index, for signs of a cyclical turnaround, as the industry's low forward P/E of 17.92X could present a value opportunity once demand fundamentals improve.