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Looking for solid investments in the manufacturing sector? Let's start with IndustryWeek's recently announced "Best Manufacturing Companies," then see which of its candidates inspire the most faith in our Fool community members.
IndustryWeek focused on companies with the most impressive revenue growth and profit margins over the past three years (weighting the past year most heavily). It also factored in asset turnover, return on assets, return on equity, and inventory turnover. These measures are good ways to zero in on the companies that are getting the most bang for their buck, growing briskly, and moving merchandise quickly off their shelves.
This formula is more inclusive than the simple screening we often do for companies. With a screen, if you require a return on equity of at least 20%, you won't be presented with an otherwise outstanding company with an ROE of 19%. But a formula can incorporate many factors, letting some particularly good numbers compensate for some lesser ones.
Without further ado, here are some of the companies from the top 30 in the list that also earned the maximum five stars from the 165,000-plus members of our Motley Fool CAPS investing community:
- Varian Medical Systems (NYSE: VAR ) is not without formidable competitors, but it already has more than 5,000 cancer radiotherapy and radiosurgery machines in service. It has received FDA approval for its Trilogy Mx radiation therapy system, which could be a big seller.
- Hasbro (NYSE: HAS ) is stretching beyond old-fashioned games and toys, signing licensing deals with major video game makers and going digital. It owns powerful brand names such as Transformers, Monopoly, Cranium, and more.
- Kimberly-Clark (NYSE: KMB ) may not be the most exciting stock on the block, but it sports a fat dividend and relative revenue and earnings stability, thanks to big brands such as Huggies and Kotex. It has also been growing sales in dynamic markets such as Brazil, Russia, India, China, Indonesia, and Turkey.
- PepsiCo (NYSE: PEP ) is a powerhouse not only in beverages, but also in salty snacks, where no competitor comes close. Soft-drink sales have been sluggish recently, but PepsiCo has been compensating by innovating, acquiring, and profiting from the popularity of water, energy drinks, healthier snacks, and more. It has been a strong dividend-raiser in recent years, too.
- Kinetic Concepts (NYSE: KCI ) is a strong player in the medical equipment industry. Its Vacuum-Assisted Closure wound-care treatment is well-regarded, and its new Prevena Incision Management system just received FDA clearance.
- Precision Castparts (NYSE: PCP ) , which supplies parts to airplane manufacturers, stands to benefit as our economy turns around. During the recession, it focused on improving its efficiency and boosting operating margins. Now it expects to profit from Boeing 787 construction.
The manufacturing sector deserves Fools' particular attention because the U.S. remains a major global manufacturing force. As Ford CEO Alan Mulally noted: "You look at manufacturing in the U.S., and it's nearly 12% of gross domestic product and represents 12 million jobs. Seventy percent of all the country's research and development is associated with manufacturing."
Many compelling companies might deserve a berth in your portfolio, and sifting through lists of strong companies is one great way to start seeking them out. And as we emerge from the recession, the potential for resurgence makes the manufacturing sector a great place to focus your attention.