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It seems to me that we tend to overuse the word contrarian in our business. It makes its users appear smart because they can position themselves to be apart from the crowd. Fair enough. But let me propose something more accurate - counterintuitive.

Over the last twenty or thirty years, even the most casual observer of economic events has heard a narrative that goes something like this: Manufacturing industries are in a permanent decline. We build little if anything while emerging nations eat our industrial lunch with cheap labor and cheap exports. As our industry hollows out, the end is nigh.

But the narrative doesn't end there. There's a parallel story that reads something like this: While manufacturing and industry might symbolize an 'old' economy, we are not to worry because there is a 'new' knowledge based economy appearing in the form of high technology. The implications for investors are quite clear: buy technology and sell industrials. Or are they? Let's have a closer look.

Total returns for both the Industrial (NYSEARCA:XLI) and Technology (NYSEARCA:XLK) SPDR's, since inception in 1998, are 5.71% for the XLI and 0.48% for the XLK. Results for 1, 3, 5, and 10 year periods are listed below. (Source: longrundata.com).

 

 

CompanyTickerRecent($)Dividend($)Yield(%)12 Month(%)3 Year(%)5 Year(%)10 Year(%)
Industrial Sector SPDRXLI41N/A2.113.512.23.89.7
Technology Sector SPDRXLK30N/A1.71.111.27.18.4

These are striking results! Or should we just say 'counterintuitive' results? A number of factors, however, shouldn't make the above all that surprising. For starters, dividend policies (if they even exist in the tech sector) are grossly different. Better returns in industrial stocks are the result of a growing and re-invested dividend.

But I'd speculate that something else is at work. It may not necessarily be that technology creators are also shareholder value creators. Many lightened wallets will attest to this. It would be like imagining Wal-Mart (NYSE:WMT) not as a retail or consumer company but rather as a software company. Powerful inventory management software is the real essence of Wal-Mart's spectacular profit growth over the last several decades. Subsequent rewards to shareholders need no further mention here.

Now let's take this argument to the 'old' economy. I'd like to consider three examples that deserve investors' attention now - General Electric (NYSE:GE), United Technologies (NYSE:UTX) and Ford Motor (NYSE:F).

Here we can find the tri-fecta of desirable traits that can reward shareholders with Wal-Mart style total returns: the deployment of technology, the incremental contribution of that deployment to earnings, and most importantly - its return to shareholders via dividends and repurchases.

In a recent post touting the 'industrial internet', General Electric outlined some aspects of its deployment of 'big data' in both its own manufacturing operations and its product mix. This quote encapsulates our story:

"By connecting machines to the Internet via software, data is produced and insight is gained, but what's more is that these machines are now part of a cohesive intelligent network that can be architected to automate the delivery of key information securely to predict performance issues. This represents hundreds-of-billions of dollars saved in time and resources across major industries."

Costs are being wrung out of the production chain at higher rates than in the past and the savings are flowing to both customers and to the bottom line. Consider that over the next ten years, GE expects big data to add perhaps 15 trillion dollars to global GDP.

United Technologies has used a similar strategy in developing its new turbofan engine. A recent Forbes article took notice. The same dynamic is at work: the new engine saves customers up to 15% on fuel usage thereby boosting United Technologies' revenue and earnings which shareholders, based on UTX's stellar track record, can expect to receive.

Ford's story is similar. While clearly a roller coaster of an investment in the recent past, the company has nevertheless emerged from the recession in an enviable position in its industry. It seems that Bill Ford believes, echoing our Wal-Mart analogy above, that Ford should be a software company first and an auto company second. It would certainly be reasonable for investors to expect Ford's future to considerably outshine its recent past.

Here are total long-run returns for GE, United Technologies, and Ford:

 

 

CompanyTickerRecent($)Dividend($)Yield(%)3 Month(%)12 Month(%)3 Year(%)5 Year(%)10 Year(%)20 Year(%)25 Year(%)Beta
General ElectricGE220.763.59.219.711.6-6.02.18.711.11.41
United TechnologiesUTX922.142.311.816.110.78.214.517.115.21.14
FordF130.402.90.316.52.217.77.444.275.31.56
Note: Since January 3, 1977 Ford Motor has returned 9.8%, dividends re-invested       

The full longrundata.com model portfolio as of March 28 is available below. All data are provided by longrundata.com.

 

 

 End of Quarter Report, March 28, 2013       
 Longrundata Model Portfolio, Total Returns as of March 28, 2013    
             
CompanyTickerRecent($)Dividend($)Yield(%)3 Month(%)12 Month(%)3 Year(%)5 Year(%)10 Year(%)20 Year(%)25 Year(%)Beta
             
Colgate PalmoliveCL1202.722.311.623.114.211.310.313.417.20.32
Kimberly ClarkKMB1033.243.113.436.720.912.811.910.813.40.04
Coca ColaKO421.122.68.312.316.88.910.19.014.20.37
Proctor & GamblePG762.413.011.918.910.24.78.212.014.30.31
Philip MorrisPM943.403.77.87.826.017.9N/AN/AN/A0.85
             
Staples Portfolio AverageN/AN/AN/A2.910.619.817.611.110.111.314.80.38
Staples SPDRXLP40N/A2.711.619.515.69.910.3N/AN/AN/A
S & P 500 SPDRSPY159N/A2.07.713.112.35.08.38.4N/AN/A
             
             
Abbot LabsABT360.561.510.624.215.49.410.312.313.60.52
Johnson & JohnsonJNJ852.442.916.028.011.37.96.313.414.40.47
MerckMRK471.723.57.919.610.17.72.48.510.20.38
NovartisNVS731.582.215.831.814.411.29.9N/AN/A0.55
PfizerPFE300.963.112.333.024.011.22.912.013.80.81
             
Health Care Portfolio AverageN/AN/AN/A2.612.527.315.09.56.411.613.00.55
Health Care SPDRXLV47N/A1.813.424.614.89.77.1N/AN/AN/A
S & P 500 SPDRSPY159N/A2.07.713.112.35.08.38.4N/AN/A
             
             
General ElectricGE220.763.59.219.711.6-6.02.18.711.11.41
Illinois Tool WorksITW651.522.5-1.19.511.56.89.912.413.81.26
3MMMM1052.542.412.822.611.18.47.69.911.51.08
United TechnologiesUTX922.142.311.816.110.78.214.517.115.21.14
Exxon MobilXOM882.282.62.26.312.83.112.211.812.50.86
             
Industrial Portfolio AverageN/AN/AN/A2.76.914.811.54.19.312.012.81.15
Industrial SPDRXLI41N/A2.17.913.512.23.89.7N/AN/AN/A
S & P 500 SPDRSPY159N/A2.07.713.112.35.08.38.4N/AN/A
             
             
Bank of AmericaBAC120.040.31.326.7-11.9-20.2-7.02.57.11.78
CitigroupC470.040.17.220.42.0-27.9-16.81.04.71.86
JP MorganJPM491.523.26.26.03.72.310.09.611.91.63
US BancorpUSB330.782.43.59.711.02.29.310.711.40.98
Wells FargoWFC371.002.76.210.27.65.67.712.116.21.19
             
Financial Portfolio AverageN/AN/AN/A1.74.914.62.5-7.60.67.210.31.49
Financial SPDRXLF18N/A1.78.316.75.8-5.40.5N/AN/AN/A
S & P 500 SPDRSPY159N/A 7.713.112.35.08.38.4N/AN/A
             
             
Model Portfolio AverageN/A N/A2.58.719.111.04.26.610.512.60.89
Sector SPDR Average   2.010.318.512.14.56.9N/AN/AN/A
S & P 500 SPDRSPY159N/A2.07.713.112.35.08.38.4N/AN/A
             
Notes:The author is a direct owner of each company mentioned here.      
 The author is not an owner of SPDR's mentioned here.       
 Three month returns are 90 days, not annualized.       
 Yield' and 'Recent' data may not reflect end of quarter date.      
             
Source:www.longrundata.com         

Disclosure: I am long GE, UTX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Source: These Are Not Your Father's Industrials