A new business cycle is underway for the United States economy, and the manufacturing sector could be in play. This time, it isn't only Wall Street pushing the bets forward but also the current administration's attempt to onshore some global steel and aluminum manufacturing jobs.

So far, markets have been accepting this new manufacturing trend. The ISM manufacturing PMI index saw its first expansionary month in February 2024, a sign of relief after contracting for more than a year. With the revival of U.S. manufacturing, the steel industry could be in play for many investors’ portfolios.

While investors could randomly pick any steel and aluminum stock and likely earn a net positive return, the objective is to beat the market. For reasons that will soon become clear, names like Alcoa Co. (NYSE: AA), ATI Inc. (NYSE: ATI), and even Carpenter Technology Inc. (NYSE: CRS) could be top picks in these new industry trends today.

Wall Street Got On Board

Analysts at The Goldman Sachs Group Inc. (NYSE: GS) sent Main Street their opinions about the manufacturing sector for the U.S., expecting a breakout inside their 2024 macro outlook report.

So far, they have been right, as the ISM showed a 6.4% increase in export orders. Because the Federal Reserve (the Fed) is looking to cut interest rates this year, as soon as September 2024, according to the CME’s FedWatch tool, prospects of a weaker dollar could make American exports more attractive to foreign nations.

This connects the dots for rising export orders, and the money is going to be made in those industries that will begin undertaking manufacturing production to fulfill these new orders. This sudden pivot may be one of the reasons why industrial stocks have outperformed in the past quarter.

During this period, the Industrial Select Sector SPDR Fund (NYSEARCA: XLI) outperformed the broader S&P 500 by 4%. This price action comes while technology stocks dominated investor sentiment for the better part of 2023 and the start of 2024.

Evidence is found for these stocks potentially being in play, signaling bullish sentiment backed by fundamental industry developments.

Only the Best Make the Cut

This is why these stocks could be the top picks rather than any steel stock. Starting with the most aggressive story, Alcoa analysts think that the stock could grow its earnings per share (EPS) by as much as 472% in the next 12 months, significantly above the steel industry’s 10% average EPS growth.

Markets are okay with these projections, however bold they may seem. To gauge this sentiment, investors can use the forward price-to-earnings (P/E) ratio, the market's way of placing a value today on tomorrow’s potential earnings.

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Valued at 21.5x forward P/E, a premium of 105% above the industry’s average 10.5x valuation, Alcoa’s earnings are justified by markets as the top quality in the space.

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Expected to grow its EPS by 30% this year, ATI has a way to make it to the list. Markets slapped an 18.3x valuation on these future earnings, or a 74% premium to the sector.

Knowing the tailwinds behind the company, analysts at Deutsche Bank boosted their price targets on the stock up to $70 a share, calling for a 37% upside from today’s prices.

Being the ones to sponsor the manufacturing insight, those at Goldman saw it fit to boost their positioning in the stock by 31.8% in the past quarter, bringing the bank’s total investment in ATI stock up to $59.4 million.

A 16% projected EPS growth for the year places Carpenter Technology at the last – but not least – place on the list. Still looking to grow above the industry and be valued at a 61% premium through its 16.9x forward P/E, this stock has merit.

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Benchmark boosted their price targets to $100 a share, a valuation that represents a 28.5% upside from today’s stock price. Considering this price target was set in September 2023, investors could be surprised with a new rating, which could be detrimental.

However, that doesn’t seem to be a risk for institutional investors, as they own 92% of Carpenter stock. On this list is Goldman Sachs again, boosting its position by 82.3%, bringing the total exposure to $68.8 million.

From massive growth at the highest premium to the less exciting EPS jump, though backed by Goldman Sachs, investors have a potential portfolio to play the onshoring of steel and aluminum manufacturing.