Why 1 of These 5 U.S. Manufacturing Stocks Lost Big in October

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There's a lot of talk about how U.S. manufacturing is dead, but apparently someone didn't tell Oshkosh Corporation (NYSE: OSK). Shares of the specialty-truck maker soared almost 11% during the month in anticipation of its Halloween earnings report. 

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Other U.S. manufacturers didn't fare quite so well, and for at least one, October's stock market brought more tricks than treats. Here's why October was so significant for Oshkosh, as well as for The Greenbrier Companies (NYSE: GBX)Deere & Company (NYSE: DE)Illinois Tool Works (NYSE: ITW), and Aerojet Rocketdyne Holdings (NYSE: AJRD)

Oshkosh Corporation (up 10.9%)

Oshkosh Corporation reported full-year earnings from its fiscal 2017 on Oct. 31 (the company's fiscal year runs from October through September). And in the month leading up to the earnings report, the market was clearly getting excited, bidding the stock up by double digits on no significant news from the company. 

Part of that enthusiasm came from the $90 billion increase in military spending Congress approved as part of the 2018 budget on Oct. 19. As a military contractor, Oshkosh could benefit from the spending increase. The company had also been steadily improving its fundamentals quarter after quarter, and investors clearly expected more of the same.

More of the same is what they got: For Q4, Oshkosh's revenue increased 11.8% year over year, with sales up across all of its segments. Operating income, net income, and earnings per share all increased significantly over the prior-year quarter. However, the market was clearly expecting more -- or else was disappointed by the company's initial 2018 guidance of $4.25 to $4.65 in adjusted EPS -- because the stock tumbled after the announcement and is down 8.4% so far in November. 

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Still, given Oshkosh's history of outperformance, this drop might represent a good opportunity to pick up some shares at a slight discount. 

The Greenbrier Companies (up 8.4%)

The Greenbrier Companies' trajectory looks very similar to Oshkosh's: a nice run in October, with the stock up 8.4%, and then a sharp fall in early November, with shares down 7.5% so far for the month. But the reasons it happened are quite a bit different from Oshkosh's.

Greenbrier, which manufactures railroad cars, reported lackluster Q3 results in late June (like Oshkosh, Greenbrier's fiscal year runs from October through September), which caused the stock to tank. It began to rally again in late September for no apparent reason, but it continued to rise in October as the company announced that it expected to exceed its guidance of $3.45 to $3.65 in diluted earnings per share for the year.

But as the day of the earnings announcement approached, the stock dropped, possibly in anticipation that things wouldn't look so good. And indeed, on Oct. 27, the company reported annual diluted EPS of exactly $3.65 a share, along with annual revenue and net earnings that were sharply lower than the prior year, plus the issuance of $276.1 million in new debt. 

Still, that's better than most analysts expected, and the company also boosted its dividend, which may be what caused its shares to jump back up before crashing right back down again in November, again on no discernible news. While Greenbrier makes railroad cars, the stock is more like a roller coaster, so investors may want to steer clear in spite of the company's decent 1.8% dividend yield.

Deere & Company and Illinois Tool Works (up 5.8%)

Although agricultural and construction equipment manufacturer Deere & Company -- better known as John Deere -- and equipment and parts manufacturer Illinois Tool Works each beat the S&P 500's 2.2% increase in October, they didn't see the big gains that Greenbrier and Oshkosh managed to register -- or the subsequent big November losses.

Illinois Tool Works' stock has been a pretty consistent outperformer, and in October, the company added another strong quarter to its string. EPS grew 14% year over year, and revenue, operating margin, and organic growth all improved. That was enough to lift shares for the second month running.

Deere doesn't report earnings until Nov. 22, but it's coming off a rough August Q2 earnings report that knocked shares down nearly 10%. Since then, the stock has clawed its way back up, buoyed perhaps by strong U.S. September manufacturing numbers. But another bad earnings report could easily knock shares back down again.

Aerojet Rocketdyne (down 9.8%)

You wouldn't think a terrible October was in store for rocket and missile propulsion system manufacturer Aerojet Rocketdyne. The stock had an impressive September, soaring 18.2% after reporting unusually strong Q2 earnings in early August.

But perhaps the company's valuation had become a bit too stratospheric for investors. The company's price-to-earnings ratio on a trailing-12-month basis had risen to an astronomical 69.8 by the end of September. By comparison, Oshkosh's P/E ratio is just under 25, and the other companies we've discussed have even lower valuations. 

Whatever the reason for the decline, the market seems prescient. In early November, the company's Q3 earnings report was a disaster. It not only missed earnings expectations but also reported negative cash from operations and a declining backlog. The company's share price fell even further in response.

After its recent market drubbing, the company's P/E is down to a more reasonable 35, but that still seems lofty for a company with a checkered earnings history. 

Now what

November hasn't been good for U.S. manufacturing stocks so far, and all of these companies have seen any October gains partially -- or, in the case of Greenbrier, almost completely -- erased. Investors might consider picking up shares of consistent outperformers Illinois Tool Works or Oshkosh. It would be risky to pick up shares of Deere before its upcoming earnings report, or Greenbrier or Aerojet without seeing more consistent performance. 

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John Bromels has no position in any of the stocks mentioned. The Motley Fool recommends The Greenbrier Companies. The Motley Fool has a disclosure policy.