We recently compiled a list of the 10 Best Manufacturing Stocks To Buy According to Analysts. In this article, we are going to take a look at where IDEX Corporation (NYSE:IEX) stands against the other manufacturing stocks.

2024 is seeing a momentous shift in global manufacturing trends that have cemented themselves over the past three decades. After China opened its economy in 1978, its sizeable population coupled with low living standards that resulted in lower wages attracted Western firms to its shores. Fast forward to 2024 and the biggest Western companies all rely on Chinese firms for their mass production needs and the disputed region of Taiwan houses the world’s biggest contract chip manufacturer.

However, now, these trends are reversing. Prior to and leading to the coronavirus pandemic, China’s share of global manufacturing rose to 31% in 2021 from 26% in 2017, and during the same time period, the Chinese share of the world’s manufactured exports jumped to 21% from 17%. These trends came as global manufacturing dropped because of the pandemic, but their reversal started in 2023 when data from the first quarter revealed that the share of Chinese made products in US imports stood at 13.3%. This marked a sharp decline from 2017’s 21.6% and was the lowest figure since 2003. These trends were also visible in the Kearney Reshoring Index, which indicates that US imports from low cost Asian countries declined by $143 billion in 2023, with Mexico crossing mainland China as the largest exporter to America for the first time since 2013 through its 32% growth.

The US and China are decoupling, and this is leading to some interesting, obvious, and unpredictable dynamics. First of all, during the same year, China’s share of American imports dropped, and US manufacturing companies grew their construction projects that covered a wide variety of industries such as food and beverage, chemicals, and chip production. Data shows that in the 12 months ending in August 2023, construction spending for manufacturing facilities surged by a whopping 80%. Mind you, this came at a time when interest rates had soared to decade high levels as the Federal Reserve battled high interest rates. Electronics led all sub categories by marking a jump of 237%, while other non residential construction spending grew by a rather paltry 6%.

While we’ll get to the reasons behind this surge in electronics in a bit, the US is not the only country in North America that’s seeing a resurgence in manufacturing spending. Right down the Southern border, Mexico is witnessing a similar boom. Foreign Direct Investment (FDI) data outlines that capital inflows in Mexico are expected to grow 10% annually to touch $650 billion by 2027. This is fueled by nearly 500 foreign companies either setting up or increasing their presence, including big ticket US automakers that have traditionally relied on their Mexican plants for lower costs.

However, these near shoring trends aren’t driven only by American companies, as Chinese companies are also eager to move to Mexico and benefit from the country’s trade ties and proximity to America. This is because as of Q3 2022, within the 5 million square meters of land acquired by new companies, 80% belonged to Chinese companies with American firms coming in second place at 14%. While the impact of this exodus on the Chinese economy is hard to quantify, research suggests that it could lead to anywhere between 1.3 million to 1.9 million jobs being lost in China.

Additionally, while the Chinese economy is slowing down due to the effect of the post pandemic policies, global growth expectations are also expected to stay muted. We’re in a historic era of high interest rates that raise the costs of setting up new plants. According to the IMF, global economic growth will remain muted in 2024 and 2025 and continue to sit at 3.2% during both years. Growth in advanced economies is expected to slightly pick up to 1.7% in 2024 over 2023’s 1.6%, while the developing world’s growth can slow down to 4.2% this year from last year’s 4.3%.

This decoupling between China and the West is the clearest in high growth and high technology industries of electric vehicles and semiconductor fabrication. Within the US, the Biden Administration’s CHIPS and Science Act and the Inflation Reduction Act (IRA)  have authorized $280 billion and $500 billion in spending and tax cuts, respectively, to spearhead semiconductor fabrication and clean energy technologies in America. The IRA in particular incentivizes EV sourcing and assembly in America. For an EV to qualify for tax credits up to $7,500, its manufacturer must assemble the final product in America and source a certain portion of its raw materials from North America or countries that have trade agreements with the U.S. Additionally, not only does the CHIPS Act prevent companies that use its funds from using the profits from facilities set up with the funds to set up plants in countries hostile to America, but it also incentivizes global and local companies to set up their factories in America.

These seismic-level shifts occur just as Europe increased tariffs on Chinese EVs to as much as 37.6%, a striking blow delivered precisely when Chinese EVs were soaring in popularity on the continent. The EV industry isn’t the only one that benefited from the IRA. On the act’s first anniversary in July 2023, more than 170,000 jobs were added across America along with 272 new clean energy projects for $278 billion in new investments. These include an expansion of the world’s largest wind turbine factory in Pueblo, Colorado, Minnesota’s largest solar power plant, and America’s first facility to make polisilicon based solar cells.

As the winds of manufacturing continue to shift, we decided to check what manufacturing stocks are on the analysts’ radar.

Our Methodology

To make our list of the best manufacturing stocks according to analysts, we ranked the top 50 holdings of iShares’ synonymous named ETF and added some stocks of our own with a sizeable manufacturing presence in America by the average analyst share price target upside and picked out the top stocks.

We also mentioned the number of hedge funds that had bought these stocks during the same filing period. 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 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

IDEX Corporation (NYSE:IEX)

Number of Hedge Fund Investors  in Q1 2024: 25

Average Analyst Share Price Upside: 17%

Average Analyst Share Price Target: $239.26

IDEX Corporation (NYSE:IEX) makes and sells a variety of industrial products such as valves, pumps, seals, and equipment also used in the medical, automotive, and chip fabrication industries. It is one of the most interesting companies on our list of the top manufacturing stocks. This is because IDEX Corporation (NYSE:IEX) has over 50 subsidiaries, and they sell specialty and niche products that have few competitors. Not only does this provide the firm a key competitive moat in a wide set of industries, but it also means that IDEX Corporation (NYSE:IEX) enjoys pricing power to set its own terms. Cumulatively, this has translated well into financial performance, with more than $600 million in free cash flow generated during 2023. Additionally, one key bit to understanding IDEX Corporation (NYSE:IEX)’s stock is that the firm has built out its portfolio through acquisitions. This means that investors have to be on the watch out for IDEX Corporation (NYSE:IEX)’s choice of funds for its deals. While its cash flow provides it with little need to raise debt, a downturn in any industry that impacts revenue coupled with acquisition agreements already in place could strain the balance sheet.

Ensemble Capital shared quite a bit of details about IDEX Corporation (NYSE:IEX)’s strengths and weaknesses in its Q1 2024 investor letter where it outlined:

“So what are some of the risks we face as shareholders of IDEX? Like with any serial acquirer, the company must continue to find acquisitions to execute, while being prudent in the quality and valuation of deals. We also expect IDEX to monitor shifting technologies and trends, and to respond appropriately in its capital allocation priorities, for example via divestitures and acquisitions. The company seems to be doing so by investing in faster growing areas recently like medical applications, optical devices, and specialty materials over traditional industrial pumps.

And what are some potential positive catalysts? IDEX has proven its ability to generate attractive returns from acquisitions in the past, and this could bode well for its chance to further compound shareholder value. We think IDEX could ramp the cash it deploys into acquisitions and it has gained the ability to do bigger deals. It generated over $600 million in free cash flow in 2023, and we think it could add significantly more debt to its balance sheet without damaging its creditworthiness. IDEX could also report improving sales growth as its customers are mostly through their de-stocking phase from inventory built-up amid the pandemic. Along with a new CFO, Abhi Khandelwal, who re-joined IDEX in November 2023, we think IDEX might be ready to fire on all cylinders.”

Overall IEX ranks 7th on our list of the best manufacturing stocks to buy according to analysts. You can visit 10 Best Manufacturing Stocks To Buy According to Analysts to see the other manufacturing stocks that are on hedge funds’ radar. While we acknowledge the potential of IEX as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than IEX but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.