Yes, construction spending in the United States is down. And now Western Europe appears to be following suit. So Manitowoc (MTW), which gets more than 80% of its revenue from cranes, should not prosper. Except for that the United States and the European Community do not make up the whole world. There will be continuing demand for cranes in the Middle East, China, India, Latin America and Eastern Europe. And with Manitowoc down by almost half since last December, this stock looks like a bargain.
But there is another reason to buy a crane builder. With petroleum prices high and likely to go higher, the world will become more vertical. It was the automobile and the relatively low price of petroleum that allowed American cities to spread out in the first place, from 1950 through about 2005, with a thriving central city giving way to thriving suburbs and then exurbs popping up at the edges. Now the process is working in reverse, with the focus back on the center and housing in the form of multi-story buildings becoming increasingly prevalent. Cranes will be required to build the housing of the future.
Besides constructing housing, going “back to the future” will require new mass transit and commercial structures. This country, and even this world, has an immense amount of construction to do over the next 40 years as we transition from a world of relatively plentiful petroleum to a world with petroleum production that is only a fraction of what it is today.
Mass transit must work on a hub-and-spokes system. The mass transit trunk lines must be where there is a large volume of traffic, which is into and out of a central hub. So if a person wishes to go from point A in the outskirts to point B, also in the outskirts, he will likely take a train into the hub and another out of the hub to point B, as opposed to driving directly to B. Accordingly, if you live near the hub it is much easier to easily reach more places.
If one looks at how urban development in the U.S. looked in 1890, even small cities and towns had multi-level structures downtown near the train station. This is the pattern of the future, and it will be built with cranes.
Terex (TEX) gets a big portion of its revenue from sales of aerial work platforms, also handy for multi-story construction, as well as making cranes. Terex has also gone down a lot since last year, and is a bargain, today.
Manitowoc has a trailing PE of 9.37, with Terex coming in at 7.23. These figures show that there is a very strong degree of skepticism on Wall Street regarding these stocks. Perhaps some view them as unexciting rust belt relics who have had their moment of excitement for the decade. But as I see it, the fundamentals are only getting stronger. At some point even a skeptical and inattentive Wall Street will have to take notice, because the money flowing in is just too good to ignore.
Both Manitowoc and Terex make and sell products other than cranes. Manitowoc also builds and sells ships and food service equipment (and has been in the news with a recently accepted bid to acquire British food service equipment maker Enodis). Terex builds and sells a wide range of construction and mining equipment. To me, it’s all good. Some might say that high tech companies are the companies of the future, but I say it is also those companies that will help us construct the fuel efficient cities of the future, namely Manitowoc and Terex.
Disclosure: I own Terex stock, myself, but no Manitowoc. I own both of these two stocks in my mFolio portfolio, however.