Earlier on February 26, Liz Ann Sonders, Charles Schwab chief investment strategist, joined CNBC’s ‘Squawk on the Street’ to discuss how manufacturing could stall due to the ongoing policy uncertainty.  She thinks that the current market sentiment is focused on concerns about economic growth more than on inflation. Sonders noted a list of weakening indicators, such as consumer sentiment surveys, retail sales, and services PMI figures. She emphasized that rising policy uncertainty also manifests in reduced intentions to purchase large capital goods and causes a pullback in capital expenditures and spending plans. Sonders explained that, over the past year, market yields have alternated between responding primarily to inflation data and growth signals, both during periods of increases and declines. She thinks that the recent downward movement in yields is driven by worries about slowing growth more than by expectations of declining inflation. This has led investors to favor more defensive sectors within the market, which reflects a broader sense of caution.

Recent PMI data has shown services activity starting to decline, but manufacturing has picked up. This could result in a potential positive convergence between the two sectors. But Sonders thinks that this improvement in manufacturing could be at risk due to the policy-related uncertainty still ongoing. Therefore, many companies within the manufacturing sector are now increasingly cautious about future investments and expansion. Sonders also pointed out that while there have been discussions about significant deficit reductions, originally targeting $2 trillion, the actual figures are much smaller. The current visible cuts amount to less than $10 billion. She argued that it is premature to focus on these spending cuts alone, as the effects of tariffs, immigration, and deportation policies, and regulatory changes are collectively putting downward pressure on growth estimates and upward pressure on inflation expectations. She added that while tax policy changes are being discussed, these are more likely to affect the year-end outlook rather than the near-term trajectory.

The manufacturing sector, despite showing signs of recovery and improvement, remains vulnerable to the broader environment of policy uncertainty and shifting macroeconomic conditions. That being acknowledged, we’re here with a list of the 15 small-cap manufacturing stocks hedge funds are buying.

Our Methodology

We first sifted through financial media reports, iShares U.S. Manufacturing ETF, Vanguard Industrials ETF, and Insider Monkey’s Q4 2024 hedge funds database reports to compile a list of the small-cap manufacturing stocks hedge funds are buying. For this article, we define small-cap stocks as those that trade between $10 billion and $20 billion, as of April 25. We then selected the top 15 stocks and ranked them in ascending order of the number of hedge funds that have stakes in them. In cases where an equal number of hedge funds held two or more stocks, we used the market cap as a tiebreaker.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).

15 Small-Cap Manufacturing Stocks Hedge Funds Are Buying

15. Textron Inc. (NYSE:TXT)

Market Capitalization as of April 25: $12.35 billion

Number of Hedge Fund Holders: 29

Textron Inc. (NYSE:TXT) manufactures, sells, and services different aircraft for the defense, industrial, and commercial businesses. It has six segments: Textron Aviation, Bell, Textron Systems, Industrial, Textron eAviation, and Finance. The Bell segment manufactures and supplies military and commercial helicopters, tiltrotor aircraft, and related spare parts and services.

The Bell segment’s revenue reached $983 million in Q1 2025, which was a 35% increase year-over-year. On the military side, Bell grew due to the execution of the Future Long-Range Assault Aircraft (FLARA) program and strengthened military support programs. As the FLARA program progresses, the focus for 2025 includes design maturation and achieving other related deliverables.

On the commercial side, Textron Inc. (NYSE:TXT) delivered 29 helicopters in Q1 2025, which was an increase from the 18 delivered in Q1 2024. Bell secured a contract for 5 additional CMV-22 aircraft and extended production through 2027. Furthermore, Bell announced a purchase agreement with Air Methods for 15 IFR-configured 407 GXIs with an option for 12 more. Deliveries for this are slated to begin later in 2025.

14. Snap-On Inc. (NYSE:SNA)

Market Capitalization as of April 25: $16.15 billion

Number of Hedge Fund Holders: 32

Snap-On Inc. (NYSE:SNA) manufactures and markets tools, equipment, diagnostics, and repair information and systems solutions. It operates through the Commercial & Industrial Group, Snap-on Tools Group, Repair Systems & Information Group, and Financial Services segments. It serves several industries that range from aviation & aerospace to infrastructure construction.

The company made a total revenue of $1.14 billion in Q1 2025. Although this was a ~3.5% decline year-over-year, Snap-on’s RSNI (Repair Systems & Information) segment grew its sales by ~3.7% in this quarter, which was driven by RSNI’s software-packed offerings. Notably, software sales within the segment grew at a higher rate than the overall increase in RSNI revenue.

The consistent performance of this segment positions RSNI as a growth engine and profit center for Snap-On Inc. (NYSE:SNA). RSNI’s products are also becoming increasingly effective due to their ability to use their database, which is further enhanced by the integration of AI. AI facilitates the translation of technicians’ natural language descriptions of repairs into the database more efficiently.

Ariel Focus Fund stated the following regarding Snap-on Incorporated (NYSE:SNA) in its Q4 2024 investor letter:

“Tool innovator, Snap-on Incorporated (NYSE:SNA) was the top contributor to performance in the period as the company continues to effectively navigate the growing complexity of the automotive repair industry. Amidst a challenging macro backdrop, SNA began redirecting product design, capacity and marketing efforts towards more affordable hand tools resulting in a sequential improvement in quarterly sales and gross margin expansion. We believe these results highlight SNA’s differentiated value proposition to its end markets, particularly as it continues to respond to real-time feedback and invest in new products to service unique needs of original equipment manufacturers. In our view, the automotive repair industry sports a favorable runway due to aging vehicles and the increased technological complexity associated with repair.”