The #1 Comeback Stock Nobody’s Talking About
Most investors still don’t know that U.S. manufacturing just returned to growth after more than a year of contraction.
The ISM Purchasing Managers Index (the benchmark gauge of factory activity) recently ticked back into expansion territory after 12 consecutive months of decline. For investors paying attention, that's a signal worth acting on.
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The Picks-and-Shovels Play on Manufacturing
Today’s stock pick doesn't build the machines. It makes what the machines run on.
Cutting tools. Wear-resistant components. Engineered tungsten carbide materials. The precision tooling that aerospace plants need to machine engine parts, that mining operations need to cut through rock, that energy infrastructure projects need to stay operational under extreme conditions.
Every time a factory ramps up, a mine expands, or a production line accelerates … THIS company gets paid. It's not a bet on any single end market. It's a toll on industrial manufacturing activity itself.
And that stock is… Kennametal (NYSE: KMT)
The AI Connection Nobody Is Making
Here's the part that surprises most people.
Everyone knows AI is driving a massive buildout in data center infrastructure. What gets less attention is what that buildout requires downstream: enormous amounts of new electricity generation, transmission infrastructure, and grid capacity to power it all.
Electricity demand is projected to grow around 3% annually through 2030, fueled by AI data centers, EV adoption, and grid buildout … with data centers alone potentially representing 17% of U.S. power demand by 2030.
That infrastructure doesn't build itself. Across the entire energy value chain (resource extraction, transmission, generation) the equipment running it depends on precisely the kind of wear-resistant components and engineered tooling Kennametal makes. Management flagged power generation as a specific growth focus area on their most recent earnings call for exactly this reason.
So while investors chase AI through chip stocks and cloud platforms, Kennametal is quietly collecting revenue from the physical infrastructure that makes it all run.
The Operating Leverage Story
When volume recovers even modestly in an industrial tooling business, earnings respond disproportionately. Fixed costs are spread across more units, margins expand, and the bottom line moves faster than the top line.
That's already showing up. Q2 results came in above management's own outlook, with 10% year-over-year sales growth described as "better than expected on higher sales volume," prompting a guidance raise to fiscal 2026 sales of $2.19 billion to $2.25 billion.
The manufacturing recovery is early. The operating leverage hasn't fully played out yet.
What Our Ratings Are Saying
Kennametal is our highest-rated stock in the Tool & Accessory industry … which is itself an A-rated industry in our system.
The standout Component Grade is Growth, which scores an A. The rest of the scorecard backs it up: Bs across Value, Momentum, Sentiment, Safety, and Financials. A well-rounded business with a growth engine that's just starting to fire.
Click here to analyze KMT stock.
And remember, unlike many other growth measures, our growth model targets consistent growth. Meaning the ability to grow at a healthy pace for a long period of time as proven out by a string of quality earnings beats with estimates going higher for the future. Here’s why that’s so important.
Bottom Line?
The manufacturing comeback is real, it's early, and it has a data center tailwind most investors haven't connected to this name yet.
KMT is our highest-rated way to own it … not a household name, not an obvious pick, but exactly the kind of under-the-radar compounder our system is built to find.
See all top-rated Industrial Tooling stocks
What to Do Next?
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