Back in the run-up to the presidential election, many experts on both sides of aisle scoffed at the notion of revitalizing manufacturing and bringing jobs back to America. One reason for such skepticism was the idea that a full-blown trade war would somehow result in the growth of factories in America to fill the void of imports. Such a metamorphosis would mean enduring years of painful price increases and the cumbersome task of rebuilding a supply chain that is largely anchored in Mexico, China and Canada.
But a robust U.S. economy and business-friendly taxes would be the perfect lure for old jobs, and more importantly, new smart factories that would be more efficient and closer to the consumer.
This is the case with the recent announcement that Foxconn, the Taiwan-based mega-factory operator and manufacturer of Apple Inc.’s (NASDAQ:AAPL) iPhones, will build two new facilities in the United States. Billions of dollars will be poured into construction and tens of thousands of jobs will potentially be created across the Midwest from Wisconsin to Michigan.
Now there is some resistance in the Wisconsin State Senate over tax breaks that could threaten the deal, but it would be a giant mistake for the state to miss out on this opportunity.
Even without Foxconn and other foreign companies prepared to build factories and bring jobs to America, there has been strong growth that should be sustained for years to come. It all begins with top-line growth. While it’s unlikely the U.S. will hit 3% GDP growth this year, one encouraging trend is the year-over-year improvement in the first half of 2017, with the third-quarter GDP estimated to come in at a 3.5% increase.
Moreover, second-quarter growth was driven by segments that underscore business investments and physical growth.
Where I See Opportunity
Goods-producing jobs have slowed in recent months, but already manufacturing, construction and mining jobs are ahead of all of 2016. Demand continues to be there, while the headwinds are lack of skills and folks being unable to pass drug tests. I think the demand will remain and even pick up steam as major commitments generate new commitments.
In the second quarter, we saw strong earnings surprises in key areas that represent the rebuilding of America from the ground up.
For example, materials companies’ earnings were up 8% compared to Wall Street’s expectation of 4.9%. As you can see below, The Materials Select Sector SPDR Fund (NYSEARCA:XLB) is in a solid up channel and making a series of higher highs and lows. It’s still trailing the broad market, but this should be corrected in the second half of the year as the market shifts to quality and value while also looking for outperformance.
Industrials have also posted better-than-expected earnings growth of 6.4% — the consensus was at 1.7% — and The Industrials Select Sector SPDR Fund (NYSEARCA:XLI) is up almost 10% year-to-date.
As a result, there are two stocks in particular that I like for long-term investors: Packaging Corp of America (NYSE:PKG), which is a leading box and paper manufacturer; and United Rentals, Inc. (NYSE:URI), the largest equipment rental company in the world.
These are the kinds of companies I think will be leading the charge as we work to rebuild America, and they’re a perfect example of the kinds of great American companies I look to invest in for long-term wealth.
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