US Manufacturing Expands at Fastest Pace Since 2022. Machinery Giants Set to Capitalize as Input Costs Squeeze Steel and Chemicals
Latest US manufacturing activity data revealed expansion at the fastest pace since 2022, driven by rising new orders and production, even as input costs for producers jumped sharply, according to Bloomberg reports. This resurgence signals a potential inflection point for industrial activity after years of contraction, but the accompanying cost surge poses risks for cost-sensitive players in the supply chain. Investors face a clear divide: who thrives on volume growth, and who gets hammered by higher raw materials, energy, and freight expenses?
The ISM Manufacturing PMI climbed into expansion territory, marking the strongest reading in nearly two years, fueled by a post-election policy shift toward domestic production incentives and infrastructure spending. Yet, the prices-paid index spiked, highlighting vulnerabilities in commodities like steel, chemicals, and energy-intensive inputs. Over the past 12 months, key input costs—steel scrap, natural gas, and resins—have risen 10-20%, per recent earnings commentary, testing producers' pricing power. This dynamic favors diversified machinery firms with pricing leverage and service revenues, while exposing steelmakers and chemical giants to margin erosion.
Caterpillar (CAT): Construction Boom Leader with Pricing Power
Caterpillar, the world's largest construction and mining equipment maker, is primed to ride the manufacturing wave. Higher activity levels boost demand for its excavators, loaders, and autonomous haulers, especially as backlog hit a record $51 billion in FY2025. Management highlighted progress in AI and autonomy at CES 2026, positioning CAT for efficiency gains amid expansion.
Input costs are a noted headwind—SEC filings detail variable manufacturing expenses like materials and freight—but CAT's 2% price realization and 62% backlog conversion provide buffers. FY2025 sales hit a record $67.6 billion, up 4% from $64.8 billion in FY2024, with gross margins steady at 32% TTM.
| Metric | FY2025 (ended Dec 2025) | TTM |
|---|---|---|
| Revenue | $67.6B | +4% YoY |
| Gross Margin | 32.3% | 32.3% |
| EBIT Margin | 16.6% | 16.6% |
| Market Cap | $345B | - |
| P/E TTM | 39x | - |
| Price Return 1M/3M/YTD | -8.5% / +24.5% / +16.9% | - |
Verdict: Strong buy. CAT's scale, backlog, and services moat make it the top winner, with FY2026 sales guidance at the high end of 5-7% CAGR.
Deere & Company (DE): Ag and Construction Tailwinds Offset Costs
Deere benefits from manufacturing spillover into agriculture and forestry, where precision tech drives upgrades. Q1 FY2026 net sales rose to $9.6 billion, with all segments growing despite tariffs. Order books strengthened, and Small Ag & Turf surged 15%.
Higher input costs pressure Production & Precision Ag, but DE's 35.6% gross margins and pricing power mitigate. FY2025 revenue was implied strong, with FY2026 guidance for 10% net sales growth in Construction & Forestry.
| Metric | Recent Q (Feb 2026) | TTM |
|---|---|---|
| Revenue | $9.6B | -2% YoY |
| Gross Margin | 35.6% | 35.6% |
| EBIT Margin | 18.5% | 18.5% |
| Market Cap | $155B | - |
| P/E TTM | 32x | - |
| Price Return 1M/3M/YTD | -4.7% / +19.0% / +22.6% | - |
Verdict: Bullish. Diversified exposure and tech edge position DE well, though ag cyclicality warrants caution.
Honeywell (HON): Diversified Industrial Powerhouse
Honeywell's conglomerate model spans automation, aerospace, and energy solutions, aligning perfectly with manufacturing revival. Organic sales grew 11% in Q4 FY2025, backlog at $37 billion, with 4% from new products. Portfolio simplification accelerates growth.
Input pressures exist in process automation, but 36.9% gross margins and R&D (quantum computing partnerships) insulate. FY2026 sales guidance: $38.8-39.8 billion (+3-6% organic).
| Metric | FY2025 | TTM |
|---|---|---|
| Revenue | ~$40B (proj) | +4.8% |
| Gross Margin | 36.9% | 36.9% |
| EBIT Margin | 18.6% | 18.6% |
| Market Cap | $146B | - |
| P/E TTM | 29x | - |
| Price Return 1M/3M/YTD | -3.4% / +17.3% / +19.7% | - |
Verdict: Buy. HON's transformation and backlog make it a resilient pick.
Nucor (NUE): Steel Demand Up, But Costs Bite
Nucor, the largest US steel producer, gains from manufacturing demand—steel mill shipments to rise 5% in 2026. Domestic demand edges up, aided by tariffs keeping imports low.
Yet, surging scrap and energy inputs challenge: EBITDA $4.2 billion in FY2025, but price realization key. TTM revenue growth +5.7%, but recent dips.
| Metric | FY2025 | TTM |
|---|---|---|
| Revenue | N/A (EBITDA focus) | +5.7% |
| Gross Margin | 11.9% | 11.9% |
| EBIT Margin | 8.2% | 8.2% |
| Market Cap | $40B | - |
| P/E TTM | 23x | - |
| Price Return 1M/3M/YTD | -11.4% / +1.3% / -3.9% | - |
Verdict: Hold. Volume helps, but cost volatility caps upside.
Cleveland-Cliffs (CLF): Most Exposed to Input Squeeze
Cleveland-Cliffs, a steelmaker focused on autos, secured automotive deals but shuttered underperforming assets amid imports. Shipments: 16.5-17M tons in 2026.
Negative margins (-4.5% gross TTM) reflect cost pressures; unit costs down $40/ton in 2025, but more needed. Revenue flat/slight decline.
| Metric | Recent Q | TTM |
|---|---|---|
| Revenue | ~$4.5B | -3.0% |
| Gross Margin | -4.5% | -4.5% |
| EBIT Margin | -8.2% | -8.2% |
| Market Cap | $4.8B | - |
| P/S TTM | 0.26x | - |
| Price Return 1M/3M/YTD | -18.2% / -33.4% / -36.7% | - |
Verdict: Bearish. High leverage to costs makes CLF vulnerable.
Dow (DOW): Chemical Margins Under Pressure
Dow faces feedstock and energy spikes in packaging/plastics. FY2025 EBITDA disciplined despite challenges; Transform program targets $2B uplift.
Negative EBIT margin (-1.8% TTM), revenue -7% TTM. Q1 2026 EBITDA ~$750M, but maintenance headwinds.
| Metric | FY2025 | TTM |
|---|---|---|
| Revenue | N/A | -7.0% |
| Gross Margin | 6.2% | 6.2% |
| EBIT Margin | -1.8% | -1.8% |
| Market Cap | $29B | - |
| P/S TTM | 0.72x | - |
| Price Return 1M/3M/YTD | +14.6% / +56.0% / +48.3% | - |
Verdict: Sell. Cost discipline lags surging inputs.
Ranked Conviction: Clear Winners Emerge
- CAT (Top Pick): Unmatched backlog, pricing power.2. DE: Ag/construction growth.3. HON: Diversified resilience.4. NUE: Modest volume upside.5. DOW: Recovery potential.6. CLF (Avoid): Margin trap.
Risks to Watch: ISM prices-paid >70 signals prolonged squeeze; steel tariffs lapse erodes protection; Q1 earnings misses on costs. Monitor manufacturing PMI >50 and input PPI for confirmation.