Thank you, Mrs. Levine. She was my second-grade teacher at PS 269 in Brooklyn. I remember her for teaching me math, letting me skip third grade and fainting when it was broadcast over the PA system that President Kennedy had been shot.
Skipping third grade was a point of pride until I was old enough to realize girls prefer men their age or older; second-grade math tells me we are on the verge of a manufacturing boom in the U.S. – and with it, some great profits from companies Wall Street has yet to identify as part of that boom.
The headlines are beginning to say this — not yet scream it, that too will come — that things are being Made in America again.
Accelerating leadership of the U.S.
Funny, they always were. Not toys or low-value-added items but the U.S. has always been, depending on how you measure it, the world’s leading manufacturer even after we let China destroy certain industries and even during the Great Recession.
And that leadership is on the verge of accelerating. Cheap natural gas — cheap shale gas — has changed everything. Lower labor costs and a flexible labor markets helps. So do the rising difficulties of doing business in China.
Wall Street is aware of this, but has yet to drink the Kool-Aid and put its money to work.
Get ahead of Wall Street
The Boston Consulting Group estimates — and they did this work for the public, not for clients with a point of view — that by 2015 the U.S. will have major cost advantages over other developed nations. In that year, if U.S. manufacturing costs are, let’s say, 100, those in France, Japan, Germany and other nations will be at least at 105 and as high as 115.
You now this now, Wall Street will know this later. Time to get ahead of the Street. Now.
I like, right now, specialty users of gas and oil. Many are MLPs already with great yields – and these too should grow over time. My favorite is Calumet Specialty Products (NASDAQ:CLMT). Calumet has a great yield — just below 8% — and options you can sell. Check the charts; the stock sells off a bit when they go ex-dividend. When you sell calls, next strike out, next month out if you can.
I also like big petrochemical outfits reaping the benefits of cheap gas. Dow Chemical (NYSE:DOW) has a cheesy yield, just 3.7%, but if you sell calls every month you can push that past 10% and enjoy the underlying appreciation of the stock. Again, when you sell calls, next strike out, next month out if you can.
The vital role of steel
And when you build a new plant, or pipe gas to that plant, or even when you frack some shale, you need steel. Take a look at U.S. Steel (NYSE:X). The stock has run, is retreating a bit, a good time to build what I call a buy/write position – buy the stock and write calls as fast you can. And you can write them fast – you can sell weekly calls on the stock.
For example, midday on a Wednesday, if the stock is at $23.12, you can sell a $23.50 call that expires in two and half days for $23 a contract. According to Mrs. Levine, my second-grade math teacher at PS 269, that is a 1% or so return, something like 50% a year on an annualized basis.
Thank you, Mrs. Levine.