New York Manufacturing's Downward Turn: A Contrarian's Gold Mine in Undervalued Industrial Stocks

The Empire State Manufacturing Survey for June 2025 paints a disheartening picture: New York's manufacturing sector remains in contraction, with the headline index edging up to -1.2, barely above May's -11.6. While new orders and shipments have stabilized, labor market hesitancy and plummeting future expectations suggest deeper vulnerabilities. Yet, beneath this gloom lies a compelling opportunity for contrarian investors: a cohort of New York-based industrial firms trading at deeply undervalued multiples, primed to rebound as structural tailwinds—like decarbonization and infrastructure spending—gain momentum.

The Downturn Isn't Universal—But the Pain Is Real

The June data reveals a sector in flux. While new orders and shipments turned positive, unfilled orders and delivery times suggest lingering supply chain disarray. Meanwhile, labor markets are bifurcated: hiring rose slightly, but average workweek hours fell—a sign of caution. Inflation remains stubborn, with input prices near historic highs, squeezing margins. And the six-month outlook index hit its lowest level since April 2020, a stark reminder of how fragile confidence has become.

For the broader U.S. industrial sector, this is a warning. New York's manufacturing ecosystem, a barometer for regional and national trends, is feeling the pinch of slowing demand, rising costs, and regulatory uncertainty. Yet, this malaise is creating a rare mispricing in equities—particularly among firms positioned to thrive in the next cycle.

Contrarian Plays: Where Undervaluation Meets Catalysts

The key is separating the cyclical losers from the structural winners. Below are five New York-based manufacturing stocks trading at P/E ratios that defy their growth potential:

1. Hillenbrand (HI:NYS) – The Undervalued Recycling Play

• Current Price: $20.81
• Estimated Valuation: $50.05
• P/E Ratio: 0.0 (unprofitable, but transitioning)

Hillenbrand's Advanced Process Solutions division caters to industries hungry for recycling and material handling systems—think plastics, food waste, and industrial byproducts. With global recycling markets expected to grow at 6% annually through 2030 (per Grand View Research), Hillenbrand's expertise in engineered processing equipment positions it to capture share. The stock's 140% undervaluation gap hints at a market that hasn't yet priced in this tailwind.

2. NuScale Power (SMR:NYS) – Small Reactors, Big Upside

• Current Price: $17.45
• Estimated Valuation: $24.71
• P/E Ratio: 0.0 (pre-revenue, but contract-driven)

NuScale's small modular reactors (SMRs) offer a carbon-free energy solution ideal for regions needing decentralized power. With governments worldwide pledging trillions to decarbonize grids, NuScale's partnerships with utilities like Dominion Energy and Idaho National Lab are catalysts for revenue growth. The stock's 41% undervaluation gap is a red flag for investors—this isn't a “story stock”; it's a project-driven play with 2026 commercialization milestones.

3. GrafTech International (EAF:NYS) – The Graphite Play with Steel Industry Traction

• Current Price: $0.78
• Estimated Valuation: $1.08
• P/E Ratio: 0.0 (cyclical downturn, but raw material leverage)

GrafTech's graphite electrodes are critical for electric arc furnaces (EAFs), which are replacing blast furnaces in steel production due to their lower carbon footprint. As China and India shift toward EAF-driven steelmaking, GrafTech's pricing power over needle coke—a key input—could amplify margins. The stock's 38% undervaluation reflects a market ignoring this transition.

4. ESS Tech (GWH:NYS) – The Iron Flow Battery Gambit

• Current Price: $2.25
• Estimated Valuation: $4.73
• P/E Ratio: 0.0 (scaling operations, not yet profitable)

ESS's iron flow batteries are a direct competitor to lithium-ion, offering longer duration storage at lower cost. With utilities and renewables firms seeking alternatives to lithium's volatility, ESS's technology is gaining traction. The stock's 110% undervaluation is a gift for investors willing to look past near-term losses.

5. Kennametal (KMT:NYS) – The Hidden Infrastructure Winner

• Current Price: $20.80
• Estimated Valuation: $41.16
• P/E Ratio: 15.1 (still reasonable for a recovery play)

Kennametal's metalworking tools and infrastructure components are essential for global manufacturing and mining. As governments ramp up spending on roads, railways, and energy grids—$2.3 trillion in Biden's infrastructure plan alone—Kennametal's backlog could surge. Its 98% undervaluation gap is a glaring misread by the market.

Why Now? The Catalysts Are Closer Than They Appear

The case for these stocks hinges on three inflection points:
1. Inflationary Relief: Federal Reserve rate cuts, now anticipated by mid-2026, will ease borrowing costs for capital expenditures.
2. Infrastructure Funding: The U.S. government's delayed climate and manufacturing subsidies are finally being allocated, favoring firms with shovel-ready projects.
3. Global Demand Rebound: China's manufacturing PMI has inched above 50, signaling stabilization—a tailwind for exporters like GrafTech and Kennametal.

Risks? Of Course. But the Reward-to-Risk Ratio Is Favorable

Bear risks include further Fed tightening, supply chain disruptions, and slower-than-expected regulatory approvals. Yet, with these stocks trading at discounts of 38% to 140%, the downside is cushioned. For example, Hillenbrand's valuation implies it can miss 2026 earnings estimates by 20% and still offer a compelling return.

The Bottom Line: Buy the Dip, but Pick Your Battles

The New York manufacturing slump is real, but it's also a filter for identifying companies with mispriced resilience. Investors should prioritize firms with:
- Defensible tech or IP (e.g., NuScale's SMRs, ESS's iron flow chemistry).
- Exposure to green infrastructure spending (Hillenbrand, GrafTech).
- Operational leverage (Kennametal's margin expansion potential).

Avoid companies reliant on near-term cyclical demand (e.g., industrial distributors). Instead, lean into the structural winners.

In the words of Warren Buffett: “Be fearful when others are greedy, and greedy when others are fearful.” New York's manufacturing malaise has bred fear—and with it, an opportunity to buy tomorrow's winners at yesterday's prices.

Investment Call: Overweight NuScale Power (SMR) and Hillenbrand (HI), with a watch on ESS Tech (GWH). Proceed with caution but proceed.

Data sources: Federal Reserve Bank of New York, stockcalc valuation platform, company earnings reports.