by Traders Reserve | June 13, 2013 11:28 am
Many things are still made in America, from airplanes, cars and bicycles to chocolate syrup . . . my favorite being Ubet chocolate syrup, made by H. Fox & Co. in Brooklyn since 1895.
And many more products are about to be made in America. The coming resurgence of manufacturing in America was highlighted in a Wall Street Journal special report this week called Advanced Manufacturing: The New Industrial Revolution.
Investors have yet to jump on this huge trend.
One reason is the short-term myopia of the geniuses on Wall Street – the ones covering 80 or 100 stocks from behind their desks. That’s not a good way to see what is going on in the real world. You have to visit factories and workers and management, as I did recently.
The other reason manufacturing is unfamiliar is that so few of us live anywhere near a factory or know someone who works in a factory. Today’s investors do not think about how stuff is made in the U.S., much less think of manufacturing as a hot topic or growth industry.
But it is a growth industry now – or will be very soon. A big number jumps out from that WSJ report : 48% of large companies plan on returning some of their manufacturing to the U.S. Compelling research by the Aspen Institute and the Boston Consulting Group, among others, highlights that the U.S. is at a tipping point and a manufacturing renaissance is in the very near future.
The keys to the renaissance are stable energy supplies, cheap natural gas and low labor costs compared to the rest of the developed world. According to BCG, the U.S. will have a 15% cost advantage or more over many developed nations by 2015. Not to mention natural gas in the U.S. sells for less than half of what it sells for in Europe and Japan.
Am I too optimistic? I recently interviewed Cal Dooley, head of the American Chemistry Council. Mixing his words and data with mine, consider the following: About five years ago, there were five large manufacturing facilities in the planning and/or permitting stage in the U.S. that would use natural gas as a feedstock or source of cheap power.
Today there are more than 115. And they will go up fast as many will be located in former industrial sites or in energy-rich, industry-friendly states such as the new iron ore processing plant announced by an Austrian company and located in the iron-poor, gas-rich state of Texas.
There are several ways to play the trend. The sector I like the most holds those companies that are about to build dozens and dozens of large industrial facilities in the U.S.
To my mind, the pick of the litter is JEC – it is undervalued, on an earnings basis, about 18% compared to the other three in part due to exposure to foreign markets. With more than 100 potential industrial plants on the horizon, worries about overseas revenues are overblown and the stock looks good right here and now.
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