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In my previous article, 'Made In America' - Does U.S. Manufacturing Renaissance Signal A Long March Back From China?, I discussed manufacturing jobs shifting back and companies building more capacity to supply the USA (SPY). Now we will look at the investment opportunities available to play the theme.

Growth in manufacturing production in the U.S. could increase the size of industrial markets, which could lead to positive operating leverage and therefore improved profitability and returns on capital for suppliers. Potential winners include small and midsize U.S.-based suppliers to manufacturing, U.S.-focused industrial distributors and U.S.-focused automation companies.

  • Operators have been allocating more capital to exploration and production of liquids in order to mitigate the recent decline in natural gas spot prices (given the better market dynamics for crude oil and NGL's). Coupled with expectations of higher crude oil prices above $100 per barrel, fundamentals for oilfield service companies are expected to remain positive in the near term.
  • Sustained lower natural gas prices will help U.S.-based manufacturing companies. They will benefit from lower energy input costs; all else being equal, lower prices will help the relative competitiveness of U.S.-based manufacturing industries versus those in locales with higher energy costs.
  • Manufacturing activity that occurs within North America could drive growth in U.S. freight volumes, because such activity tends to involve more intra-national movements as components are transported around the country. This could benefit trucking companies that move more onshore freight than imports, railroads that move raw materials and long-haul shipments, and suppliers to those industries.
  • Lower natural gas prices could improve profitability and returns on capital of U.S. chemical companies, U.S. natural gas producers (provided they can capture some of the higher global prices through LNG or use of natural gas to displace oil as a transportation fuel), regulated electric utilities that may be able to earn regulated returns on new natural gas electricity plants, and unregulated electric utilities that generate electricity with highly efficient natural-gas-powered plants. Top picks to play this trend include Range Resources (RRC), Chesapeake (CHK), Encana (ECA), Devon (DVN), Anadarko (APC), Apache (APA), Marathon Oil (MRO), EOG Resouces (EOG), ConocoPhillips (COP) & SandRidge (SD)
  • The benefits of more U.S. manufacturing production, higher manufacturing employment and lower natural gas prices are likely to be found in pockets of regional strength. This could create opportunity for small regional retailers, which may see higher sales and improved profitability; regional banks (KRE), which may see lower losses and better loan growth; construction companies, which may benefit from increased construction activity; and electric and other utilities, which may see accelerated demand growth.

Industry

Companies

Energy-Oilfield Services

Halliburton (HAL), Schlumberger (SLB), Weatherford (WFT), Baker Hughes (BHI)

Chemicals-Ethylene producers

Dow Chemical (DOW), ChevronPhillips, Westlake Chemical (WLK), Lyondell (LYB), Nova Chemicals (NCX)

Chemical-Fertilizer

Agrium (AGU), Mosaic (MOS), Potash (POT)

CF Industries (CF)

Chemical-Industrial Gas producers

Air Products (APD), Praxair (PX)

Capital Goods

General Electric (GE)

Building Materials

Martin Marietta Materials (MLM), Vulcan Materials (VMC)

Regional Banks

BB&T Corp (BBT), PNC Financial (PNC), Regions Financial (RF), Fifth Third (FITB), New York Community Bank (NYB) and US Bancorp (USB)

Trucking Companies

J.B. Hunt Transportation Services (JBHT), Landstar (LSTR) and C.H. Robinson (CHRW)

Natural gas producers

Range Resources, Chesapeake, Encana, Devon, Anadarko, Apache, Marathon Oil, EOG Resouces, ConocoPhillips & SandRidge

Source: How To Play U.S. Manufacturing Renaissance Theme?