Despite reports of weakness in the global economy, factory activity in the U.S. expanded to its highest level since June, giving hope to the notion that the American economy is accelerating.

November's Institute for Supply Management's factory index rose to 52.7 in November, up from 50.8 in October. Readings above 50 indicate expansion, while readings below 50 indicate contraction. The reading came as a pleasant surprise to analysts, including Bloomberg News, which projected a gain to 51.8 and a Reuters poll which expected a reading of 51.5.

According to the Commerce Department, construction spending also climbed 0.8% to an annual rate of $798.53 billion, reflecting gains in housing and commercial projects.

Furthermore, "ISM report showed the measures of production and new orders climbed at the fastest rate since April. Factory inventories shrank, while a gauge of customer stockpiles climbed to the highest since March 2009."

Not yet in the clear
While the index brings hope to an economic recovery, economists warn not to get too excited too soon.

"New claims for unemployment insurance rose last week in a reminder that any healing in the country's battered labor market will be slow," notes Reuters.

Reports also suggest a contraction in global growth, and given a heavy reliance on emerging markets, a global slowdown remains a risk to American manufacturers. Reports also show the manufacturing industry has shrunk in China and Europe.

Investing ideas
Interested in following or investing on the trends of industrial companies? 

We ran a screen on the most profitable large-cap industrial goods stocks traded on U.S. exchanges, with gross, operating, and pre-tax margins greater than their industry peers.

Do you think these companies will outperform?

List sorted alphabetically. (Click here to access free, interactive tools to analyze these ideas.)

 1. Dover (NYSE: DOV): Dover Corporation manufactures and sells industrial products and components, and consumables. Market cap of $10.15B. TTM gross margin at 41.88% vs. industry gross margin at 32.30%. TTM operating margin at 15.14% vs. industry operating margin at 12.93%. TTM pre-tax margin at 13.62% vs. industry pre-tax margin at 11.04%.

2. Fastenal (Nasdaq: FAST): The Company Is Engaged As A Wholesaler And Retailer Of Industrial And Construction Supplies. Market cap of $12.33B. TTM gross margin at 53.68% vs. industry gross margin at 37.71%. TTM operating margin at 20.47% vs. industry operating margin at 13.56%. TTM pre-tax margin at 20.49% vs. industry pre-tax margin at 12.94%..

3. Goodrich (NYSE: GR): Goodrich Corporation supplies aerospace components, systems, and services primarily in the United States, Canada, Europe, and the Asia Pacific. Market cap of $15.36B. TTM gross margin at 35.24% vs. industry gross margin at 25.79%. TTM operating margin at 15.80% vs. industry operating margin at 12.04%. TTM pre-tax margin at 12.77% vs. industry pre-tax margin at 7.08%.

4. Honeywell International (NYSE: HON): Operates as a diversified technology and manufacturing company worldwide. Market cap of $41.90B. TTM gross margin at 28.99% vs. industry gross margin at 25.79%. TTM operating margin at 12.43% vs. industry operating margin at 12.04%. TTM pre-tax margin at 9.52% vs. industry pre-tax margin at 7.08%.

5. Republic Services (NYSE: RSG): Provides nonhazardous solid waste collection, transfer, and disposal services in the United States. Market cap of $10.13B. TTM gross margin at 40.86% vs. industry gross margin at 40.66%. TTM operating margin at 19.57% vs. industry operating margin at 14.52%. TTM pre-tax margin at 11.09% vs. industry pre-tax margin at 11.08%.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.


Kapitall's Rebecca Lipman does not own any of the shares mentioned above. Profitability data sourced from Fidelity.