Made in America is a term that is becoming a cliché – I ran out of imagination and named my most recent book Made in America, since that is what it is about – the question for investors is “can I make money from more and more things being made in America?”
You bet. Or, if you like chocolate syrup made in Brooklyn, U-bet. (great for egg creams since 1895!)
The Wall Street Journal just published an eight page special report on manufacturing in America. The big number – 48% of large companies plan on returning some of their manufacturing to the US. Fortunately for investors, the geniuses on Wall Street are not spending any time or energy on this emerging trend. The keys to the renaissance are stable energy supplies, cheap natural gas and low labor costs compared to the rest of the developed world.
There are several ways to play the trend:
- Manufacturers of finished goods
- Manufacturers of semi-finished goods (i.e. ethylene)
- Builders of factories and large industrial facilities
- Energy infrastructure companies – pipeline builders, oil service companies, offshore drilling specialists
- Energy companies – frackers, large oil and gas outfits, pipeline operators, refiners.
What looks best, right now? Focusing purely on industry, (I can get to energy and fracking in a later column) I like the companies that are about to build dozens and dozens of large industrial facilities in the US. 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 facilities in the planning and/or permitting stage in the US. There are now more than 115. And the one that get the go ahead will go in pretty fast as most 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.
Four companies to look at are Jacobs Engineering (JEC), Foster Wheeler (FWLT), Fluor (FLR) and Chicago Bridge and Iron (CBI). 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. Think about selling some puts, the June $55s expire just eight trading days from now and carry a very nice premium.
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