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This Month's Exclusive Content
A Manufacturing Surprise Could Be a Big Win for These 2 CompaniesBy Nathan Reiff. First Published: 10/5/2026. 
Key Points
- The S&P Global U.S. Manufacturing PMI reached 57 in late September, its highest level in 52 months, signaling continued factory sector expansion.
- Emerson Electric and Rockwell Automation are industrial automation providers positioned to benefit indirectly as manufacturers seek efficiency amid a factory sector recovery.
- Both companies posted strong recent sales and earnings growth, but trade at premium valuations, with analysts favoring Emerson over the more lukewarm Rockwell.
- Special Report: The Untouched Energy Source Behind a New Eight Year Tax Break
Amid inflation, soaring diesel prices and a lackluster employment report, investors will welcome any good news about the state of the U.S. economy. In late September, a bright spot emerged when the S&P Global U.S. Manufacturing PMI reached 57, its highest level in 52 months. The reading suggests that the domestic factory sector remains in expansionary territory, although manufacturing activity has strengthened only modestly amid a broader pickup in business activity. With demand for domestically manufactured goods remaining strong despite supply chain constraints and rising input costs, it may be time for investors to consider companies that could benefit from a recovery in the factory sector.
Emerson Electric Co. (NYSE: EMR) and Rockwell Automation Inc. (NYSE: ROK) are well positioned within domestic manufacturing, meaning both companies stand to benefit from a stronger manufacturing PMI. They offer varying levels of direct exposure to manufacturing, and each comes with potential risks to consider. Emerson Narrows Its Focus as AspenTech Integration ProgressesEmerson is an automation and industrial software provider. Rather than manufacturing products itself, the company helps other manufacturers automate their processes and improve the performance and control of their operations. For investors, this means Emerson is less directly tied to the behavior and demand cycles of individual industries and more closely linked to the broader secular trend toward manufacturing automation. Over the last 18 months or so, Emerson has worked to integrate AspenTech, the process automation services provider it acquired for $7.2 billion in March 2025. As the integration progresses, AspenTech should become a margin-expanding component of Emerson's broader operations. For Emerson's third quarter of fiscal 2026, which ended June 30, the benefits of AspenTech were already on full display. The company reported 6% year-over-year (YOY) growth in underlying sales and 7% growth in orders. Adjusted earnings per share (EPS) also improved YOY. Semiconductor and power demand fueled significant growth in both areas, helping the company raise its full-year guidance even as it plans to return $2.2 billion to shareholders. In recent years, Emerson has narrowed its operational focus by divesting certain noncore parts of its business and leaning heavily into software and systems. So far, this strategy has paid off for the company and its investors, with EMR shares up about 23% year to date (YTD). With the stock trading at more than 35 times earnings, it is hardly the cheapest option available. Despite only modest upside potential projected across Wall Street, analysts remain supportive of Emerson, with 14 Buy ratings compared with 10 total Hold and Sell ratings. Rockwell's Moderate Performance Belies Its Operational SuccessesRockwell is a direct competitor to Emerson because of its similar focus on industrial automation technology. However, its lineup of programmable logic controllers, motion control systems and related software stands out because it caters to a different set of clients than Emerson. This has allowed both companies to find profitable niches that could continue to expand if the manufacturing recovery continues. Last quarter, Rockwell reported organic sales growth of 10% YOY, fueling adjusted EPS gains of more than 20% over the same period. As with Emerson, margins are expanding thanks to significant gains in the software portion of Rockwell's business. Growth is not limited to one area, though, and Rockwell has benefited from gains across multiple parts of its operations. This has given management the confidence to raise its full-year guidance for reported and organic sales growth, even as margins are expected to expand by 260 basis points. ROK shares also trade at a premium, with a price-to-earnings (P/E) ratio of about 43. The company has not performed quite as well as Emerson in terms of share price, with the stock rising about 17% YTD. Analysts are also somewhat more lukewarm on ROK shares, assigning the stock an overall Hold rating and projecting just 3% upside potential. The Role of Automation Firms in ManufacturingInvestors might expect Emerson and Rockwell to benefit from increased manufacturing activity across the country. However, that benefit may not be as immediate as it would be for companies that conduct manufacturing operations directly. Instead, Emerson and Rockwell could be secondary beneficiaries. As manufacturing companies increase their volumes in a supportive environment, they may increasingly turn to automation to improve efficiency and production. In these cases, Emerson and Rockwell stand to benefit. This could make the companies appealing medium- to long-term plays for investors who are bullish on the future of domestic manufacturing more broadly. |
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