'Buy American' Stimulus Provision - Three Ways to Capitalize

The US stimulus has a provision called “buy American”, meaning the stimulus money should be used to purchase US merchandise. What does this mean to your investment? The two rules you want to follow are:

1. Avoid overseas companies that enter US market for growth. For example, some Chinese solar companies, such as Suntech Power (STP), Yingli green (YGE), Canadian solar (CSIQ), JA solar (JASO), Solarfun (SOLF), Trina solar (TSL) etc. Based on the stimulus provision, these companies' products cannot be used in building US solar farms. This explains why Chinese solar overall is underperforming US peers. If you compare Sunpower (SPWRA) to Suntech Power, Suntech Power has underperformed by 20% in the past 3 months. Green energy is a big chunk of Obama’s stimulus package, but you want to stick to US domestic companies only, such as Sunpower, Energy Conversion Devices (ENER), and First solar (FSLR). If you want to buy Chinese solar, you may want to wait until Chinese government officially supports solar energy, but right now they are not endorsing it.

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2. Pay attention to infrastructure play, over $50B will be spent on roads, bridges, railways. Steel as a commodity will be widely used in the next 2 years, and the demand will likely zoom up quickly. Investors will scoop up steel and iron ore company stocks when the work kicks off. Companies include US steel (X), Cliffs Natural Resources (CLF), etc. However, try to avoid overseas steel producers.
3. Avoid American companies whose exports are a big part of their revenue. These include computer maker DELL, GE, and Microsoft (MSFT). The protectionism will likely heat up when “buy American” spreads and countries like China and Europe will adopt a similar rule in their own stimulus packages.

Disclosure: long FSLR

Comments

[morph366:]

Good to have such a straightforward declaration of your strategy.

Feb 08 06:08 AM

[Pidepiper7:]

Why are you referring to SunPower as an American stock??

They maintain a primarily white management team which maintains a Silicon Valley address -- but only for the PR value of doing so.

They're real facilities (i.e where they've invested most of their resources, manufacturing, etc.) are in Asia.

Their products are SHIPPED from Asia INTO the U.S.

How does this make them an American stock?

Feb 08 07:16 AM

[Pidepiper7:]

One other point about the "buy American" sentiment...

I thought this through a few months ago when they first started talking about massive stimulus. My first assumption, at the time, was that U.S. companies would most likely be the beneficiaries of such stimulus.

However, I eventually reached the conclusion that this type of sentiment is outdated, impractical, and unrealistic.

There are truly very few, IF ANY, American companies which can be properly called American. Supply-chains and manufacturing of product by most American companies is rarely limited to the U.S.

Consider companies like Wall-Mart or SunPower, where nearly all of their supply-chain and manufacturing occurs outside of the U.S. but which maintain headquarters in the U.S.

Even a company like GE has global manufacturing/supply-c...

At which point do you draw the line?

I wasn't able to come to any clear distinction between American/non-American. If anything comes close it would be to consider a company as American if it's manufacturing base was in the U.S.

But if the U.S. Congress adopted that requirement, they would be left with few companies to do the work.

So, it's not even so much a question of whether the policy is "protectionist" or not. It's just not clear who is or isn't.

Feb 08 07:41 AM

[Alphameister:]

Good comments, PiedPiper!

Last I heard, the "Buy American" provision had been emasculated by a statement that it should apply only when it doesn't violate existing trade agreements (meaning it should be a sop to our union supporters and an irritant to our trading partners even if its practical consequences are negligible).

Feb 08 09:40 AM

[a. palmer jr.:]

Yeah, it's been removed...wouldn't have worked anyway, too many corporations would figure a loophole in the law and buy overseas anyway. But we as citizens of the USA still have a choice of what to buy. Read the labels, there are still US businesses that make the things we want.

Feb 08 10:45 AM

[a. palmer jr.:]

A. Palmer Jr. Congressional rating: 10% and falling.

Feb 08 11:16 AM

[dakeeler2:]

Buy American is a joke. The government gives our money to General Motors who signs a contract with a South Korean company to make the batteries for GM's electric cars. If they take our money , they should have to buy American also.

Feb 08 12:20 PM

[MikeyLV:]

Barron's just said ENER won't have the income of before and basically downgraded.

Feb 08 01:18 PM

[Jade Queen:]

From what I hear in the industry, installers like SunPower products. The installers in the U.S. and can put political pressure on assorted congresscreatures. To me, this gives SunPower an advantage, and I own it. Installers tend not to like callbacks. I'm in Suntech because they sell all over the world and are not limited to here, though they have partners here. If the Chinese government starts losing its own family members to pollution in high enough numbers, they may start incentivizing installations there. I don't have much in these companies, but I want to watch solar because I like the micro-grid concept as well. I like the idea of a distributed grid where human or Great Whatever can't cause havoc by knocking out a big wire somewhere, and I think micro-grids are just coming. I would rather be in the engine and not in the caboose.

Feb 08 01:24 PM

[gebby:]

all the solars are international in scope and there is enough potential business to go around. eslr and fslr both manufacture domestically but also are setting up and have facilities in asia. the perception is not always the reality.

Feb 08 03:36 PM

[Ishortyou:]

Protectionism is and always will be bad for your economic machine, period. If those socialist communist democrats will get points to keep their seats in the government with this crap "buy american" then it will not be good for the economy in the long run.

Feb 09 09:00 AM

[Billy Gee:]

We have a one trillion dollar trade deficit every two years. The Chinese have a soverign fund that holds one trillion U,S. dollars amassed from not only hard work BUT: ignoring intellectual property rights, export tax credits to their industries, a huge bereaucracy to thwart imports and manipulate their currency to increase exports at any cost. The Chinese can either Buy American for a change or our trade relations will have to be severly modified to end a bizarre era in Internationl trade.

Feb 09 01:18 PM

[Randall Arnold:]

If you want an American company, go with Entech Solar.

www.entechsolar.com/

Feb 09 06:59 PM

[enigmadude:]

I like ASTI for an American solar play.

Feb 09 11:48 PM

[mbagne:]

Extremely poor research. Kelvin should be embarrassed. Investors should avoid this advice. Buy American clause in Senate version of stimulus applied to steel and iron for building roads and bridges. Senate watered down as to be essentially meaningless. May not, and probably won't, survive final bill. More importantly, the writer should research First Solar and report on where their major manufacturing facilities are located. Only now is First Solar scrambling to expand its production plant in Ohio. Investors who want to put American workers to work should buy SolarWorld, which happens to be headquartered in Germany but currently - right now - has the largest module manufacturing plant in North America. Buy First Solar, sure, you'll be putting lots of people to work in Germany and Malaysia. Buy SolarWorld and put lots of people to work in Oregon. Kelvin doesn't seem to get the full meaning and impact of what's going on. It's a global economy and the only way to rescue the American economy is to work in full concert with the world. And I don't even own SolarWorld. I have another one I like that's about to make a big aggressive move in the United States and put lots of Americans to work. Like other commentators above, I'd encourage traders to pull off that "Buy American" bumper sticker and look underneath. For starters, just google First Solar manufacturing facilities. - mb

Feb 10 08:38 PM

[Gregory Pepin:]

Concerning the buy america clausus on Solar, you are wrong Kelvin,
the producer of Panel in Asia are selling panel to producer in the US or to retailers in the US. Those retailers will then sell their services to the market. Therefore they aren't touch by the "buy america" provision at all.

There is one question i need to find answer on :
Why now all the solar stock are getting hit whereas the future of the sector is bright and the stimulus, at least, will have direct impact on the sector and direct positive impact.

Feb 18 11:15 AM