Made in America: 5 Great Core Industrial Stocks

by Traders Reserve | July 3, 2013 7:00 am

 The U.S. energy boom is already making itself felt in two parts of manufacturing: those sectors using cheap gas and those turning raw hydrocarbons into refined products.

The boom can been seen in the rapid pace at which U.S. companies are planning new industrial facilities. Some five years ago, about five large facilities in the planning and/or permitting stage in the U.S., according to Cal Dooley of the American Chemistry Council. Today, more than 115 such industrial plants or complexes are on the drawing boards. Plants that get the final go-aheads will be up and running quickly. Most will be located in former industrial sites or in energy-rich, industry-friendly states, such as the new iron ore processing plant planned by an Austrian company in iron-poor, gas-rich Texas.

For investors, the first wave of investment opportunities are in companies building those new industrial facilities – for someone else or for their own use.

Here are 5 top core industrial stocks. These Made in America companies will thrive in the coming manufacturing boom:

Calumet Specialty Products

For all its success and a yield of more than 7%, Calumet Specialty Products (CLMT[1]) is still relatively unknown and is often lumped in with all other refiners. Fine — let Wall Street continue to think that way. Gives you a chance to get in. Calumet does what the name says – it makes a range of specialty refined products in addition to gasoline and diesel. Calumet is the world leader in aviation lubricants, a booming business, and even makes the wax used in lipstick. This products mix shields a good deal of its revenue and profits from the ups and downs of the gasoline market. The company’s existing refineries are in the Midwest, near that North Dakota oil fields, and it is building a new refinery right in the middle of the Bakken shale country in that state. Once that refinery opens, Calumet will see even more profit growth.

Jacobs Engineering

Jacobs Engineering (JEC[2]) is an engineering design and construction firm with presence and projects around the world. Simply put, Jacobs is in the perfect business to benefit from booming demand industrial construction. The company is huge, generating just under $112 billion in revenues in 2012. Jacobs has an excellent market presence and exposure to energy, with a range of existing clients in the oil and gas industry. It should see its top line grow as the manufacturing renaissance takes hold and economies improve around the world in the next three years. Jacobs is not an exciting stock, but it is currently undervalued compared to other companies in this sector. For investors, it’s a potential core holding whose top and bottom lines will grow steadily.

US Steel

Household name U.S. Steel (X[3]) is no longer a core stock in most portfolios, is now benefitting directly from the fracking boom. It makes the steel used in pipelines, fracking equipment and so on; it will provide much of the steel that will be required for new industrial plants. Most important, right now, the stock is very much unloved due to pension and balance sheet issues. But this has created a very good opportunity for investors. The stock can be volatile — it will move when someone says something about Chinese steel production — but volatility is not risk.

Clean Energy Fuels

Clean Energy Fuels (CLNE[4]) is T. Boone Pickens’ natural gas filling station – excuse me, natural gas infrastructure company. CLNE is building out natural gas terminals and stations around the country in anticipation of more and more natural gas-powered vehicles on the road. It’s a good call: UPS (UPS[5]) and FedEx (FDX[6]) have announced plans for natural-gas-powered trucks, Ford and GM are building natural-gas-powered pickups. Here’s the key: when natural gas costs the equivalent of less than 75 cents for a gallon of gas, the math is simple and compelling. CLNE is speculative, using a lot capital. If oilman Pickens get bored or becomes unwell, the stock could take a hit, but the company is in the right place at the right time. (Disclosure: Traders Reserve’s Michael Shulman owns shares in Clean Energy.)

Foster Wheeler

Like Jacobs Engineering, Foster Wheeler (FWLT[7]) provides design and construction services for large industrial projects but has more exposure to the oil, gas and power industries. The company sits at the intersection of the boom in new industrial facilities and the shift to gas in electric power plants. As the world consumes less coal and more gas to produce electricity, either for the grid or for a large industrial facilities, the gas market grows. FWLT is a bit of a boom and bust company – it does some very large projects and when they go away, the top line can take a hit. But I believe we are in the early stages of a shift to gas-based electricity production, notably in Germany and Japan.

  1. CLMT:
  2. JEC:
  3. X:
  4. CLNE:
  5. UPS:
  6. FDX:
  7. FWLT:

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