The Zacks Manufacturing - Construction and Mining industry has been bearing the brunt of the prolonged contraction in the manufacturing sector. Even though there has been a recent uptick, the imposition of new tariffs could jeopardize this recovery. 

Despite this ongoing weakness, increased infrastructure investment in the United States and demand from the mining sector, driven by the energy transition trend, will buoy the industry. Caterpillar Inc. CAT, Komatsu KMTUY, Hitachi Construction Machinery HTCMY and Hyster-Yale, Inc. HY are poised to benefit from these trends. These companies’ emphasis on introducing technologically advanced products, productivity and efficiency enhancements will aid growth.

Industry Description

The Zacks Manufacturing - Construction and Mining industry comprises companies that manufacture and sell construction, mining and utility equipment. They support customers using machinery in the construction of commercial, institutional and residential buildings, and infrastructure projects. Their equipment is also utilized in underground mining, drilling, mineral processing and surface mining to extract and haul copper, iron ore, coal, oil sands, aggregates, gold, and other minerals and ores. Their products are varied, including loaders, pavers, dozers, excavators, concrete mixer trucks, crushing, pulverizing and screening equipment, tractors and cranes. Industry participants support oil and gas, power generation, marine, rail and industrial applications through their reciprocating engines, generator sets, gas turbines and turbine-related services.

Trends Shaping the Future of the Manufacturing - Construction and Mining Industry

Tariff Concerns Overshadow Recent Manufacturing Rebound: The Institute for Supply Management’s manufacturing index had been in contraction for consecutive 26 months until January 2025, when it saw a modest increase to 50.9%. Over the past 12 months, the index has averaged 48.4%. The New Orders Index has expanded for the past three months, following seven consecutive months of contraction. However, sustained growth remains uncertain as the index has not delivered consistent growth since the end of its 24-month expansion streak in May 2022. The Production Index also moved into expansion territory in January, registering 52.5% and breaking an eight-month contraction streak. The recent imposition of tariffs by President Trump on Canada, Mexico and China triggers concerns that it could disrupt supply chains and derail this recent recovery in U.S. manufacturing.

Energy Transition Trend, Construction Spending to Aid Industry: The intensifying global focus on shifting from fossil fuels to zero emissions will require a large number of commodities, which, in turn, will support mining equipment demand in the years to come. The U.S. government's plans to increase investment in infrastructure construction, particularly in critical subsectors, such as transportation, water and sewerage, and telecommunications, should support demand in the coming years.

Higher Pricing, Cost Cuts to Boost Margins: The industry is facing input cost inflation, and transport and logistic costs. Industry players are focusing on pricing and other actions to improve productivity and efficiency. They are constantly implementing cost-reduction actions, which are likely to help sustain margins in this scenario. The companies are focused on streamlining their operations and realigning around high-growth key markets or customer segments to enhance their performances.

Investments in Digital Initiatives Act as a Key Catalyst: Industry participants are investing in digital initiatives like AI, cloud computing, advanced analytics and robotics. Digital transformation aids organizations in boosting productivity and increasing efficiency, reliability and safety, thereby enriching customer satisfaction. With the pressing need to cut carbon emissions, companies worldwide are relying more on autonomous machinery. Thus, players in the industry are stepping up their research and technological capabilities to bring products equipped with the latest technology into the market.

Zacks Industry Rank Indicates Weak Prospects

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates dim prospects in the near term. The Zacks Manufacturing - Construction and Mining industry, which is part of the broader Zacks Industrial Products Sector currently, carries a Zacks Industry Rank #204, which places it at the bottom 18% of 249 Zacks industries.

Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.

Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group's earnings growth potential. Over the past four years, the industry's earnings estimates for 2025 have moved down 13%.

Before we present a few stocks that you may want to consider for your portfolio, let us look at the industry’s recent stock-market performance and valuation picture.

Industry Versus Broader Market

The Manufacturing - Construction and Mining industry has outperformed the sector but lagged the Zacks S&P 500 composite over the past year.

Over this period, the industry has grown13.3% compared with the sector’s growth of 11.9%. The Zacks S&P 500 composite has moved up 23.8%.

One-Year Price Performance


 

Industry's Current Valuation

The forward 12-month EV/EBITDA ratio, a commonly used multiple for valuing Manufacturing, Construction and Mining companies, shows that the industry is currently trading at 10.92 compared with the S&P 500’s 13.96 and the Industrial Products sector’s forward 12-month EV/EBITDA of 19.85. The charts below show this.

Enterprise Value/EBITDA (EV/EBITDA) F12M Ratio

Enterprise Value/EBITDA (EV/EBITDA) F12M Ratio

Over the last five years, the industry traded as high as 14.37 and as low as 7.36, with a median of 10.43.

 

Four Manufacturing - Construction & Mining Stocks to Watch

Caterpillar: The company ended 2024 with an impressive backlog of $30 billion, which will support its top line in the upcoming quarters. Solid long-term demand prospects, backed by infrastructure spending and energy-transition trends, should help it maintain an upbeat performance. In the Energy and Transportation segment, strong order rates in most applications are expected to support revenues. As technology companies establish data centers globally to support their generative AI applications, the company is witnessing robust order levels for reciprocating engines for data centers. It is planning to double its output with a multi-year capital investment. CAT has been seeing growth in aftermarket parts and service-related revenues, which generate high margins. The company is on track to double its service revenues from $14 billion in 2016 to $28 billion in 2026. CAT stock has gained 14.1% in the past six months.

Caterpillar has a trailing four-quarter earnings surprise of 4.53%, on average. CAT has an estimated long-term earnings growth rate of 8.9%. The company currently carries a Zacks Rank #3 (Hold).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Price: CAT

Komatsu: The company has been witnessing higher demand for mining equipment. The industrial machinery and others business is gaining, supported by increased sales of large presses for the automobile manufacturing industry and higher maintenance sales in the excimer laser-related business for the semiconductor industry. The company is strengthening its underground hard rock mining equipment business through an enhanced lineup, development of latest mining methods and strategic acquisitions. KMTUY recently showcased its construction equipment designed to withstand extreme environments such as on the moon and underwater, which also demonstrates technological innovation efforts toward achieving carbon neutrality by 2050, highlighting its advanced technology and future potential. The company’s shares have gained 13.3% in the past six months.

The Zacks Consensus Estimate for Komatsu’s fiscal 2025 earnings has remained unchanged over the past 60 days. KMTUY has an estimated long-term earnings growth rate of around 2%. It currently carries a Zacks Rank of 3.

Price: KMTUY

Hitachi Construction Machinery: HTCMY aims to achieve revenues of more than 300 billion JPY in fiscal 2025 from independent business expansion in the Americas alone. Other core strategies of the plan include delivering innovative solutions for customer needs and enhancing value chain business. The company is, thus, strengthening its focus on value-chain businesses other than new machinery sales, such as parts and services, rentals, used equipment, and parts recycling. It is utilizing digital technologies to provide solutions at all points of contact with customers. The company plans to begin full-scale production of dump trucks in fiscal 2026, aiming to capitalize on strong demand in the market. Notably, the Americas (North, Central and South America) account for approximately 40% of the global markets for dump trucks, totaling more than 150 tons. This aligns with one of HTCMY’s core strategies of “expanding business in the Americas” under its medium-term management plan “BUILDING THE FUTURE 2025.” Its shares have gained 8.6% in the last six months. 

The Zacks Consensus Estimate for HTCMY’s current-year earnings has been unchanged over the past 60 days. Hitachi currently carries a Zacks Rank of 3.

Price: HTCMY

Hyster-Yale: The company is executing key strategies to drive substantial longer-term profitable growth. As part of this, its product development and process improvement efforts are leading to more efficient lift truck production and reduced operational costs, while maximizing operational efficiency and factory utilization among others. Hyster-Yale continues to make progress toward its goal of generating 7% operating profit margins across each business cycle in the Lift Truck and Bolzoni businesses. Bookings are expected to accelerate in the second half of 2025 and the company expects improved production levels in 2026. In the meantime, strategic actions to reduce costs, improve productivity and deliver high-quality, highly customizable products should enable the company to be more profitable in all phases of the business cycle.  Hyster-Yale continues to focus on cash generation and follows a disciplined capital allocation framework to reduce leverage, make strategic investments to support profitable business growth and generate strong returns for its shareholders.

The Zacks Consensus Estimate for Hyster-Yales’s 2025 earnings has been unchanged over the past 60 days. HY currently has a trailing four-quarter earnings surprise of 10.3% and a Zacks Rank of 3.

Price: HY

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