Briggs & Stratton (NYSE:BGG) designs, manufactures, markets, and services air-cooled gasoline engines for outdoor power equipment ranging from 3 to 25 horsepower. This translates into lawn equipment.
Housing formations have been nowhere near historical levels in this recovery. That has begun to shift and should become stronger as the recovery truly takes hold. This means more people will be out buying lawnmowers, weed-wackers, leaf-blowers, etc. BGG will supply a large share of the motors that power most of this equipment. That's the first building block of the buy thesis.
The second (and more important) building block is the manufacturing renaissance that is being set up in North America thanks to cheap and abundant shale gas. The days of "outsourcing" had to do with seeking the cheapest labor costs. As the part played by labor has shrunk thanks to robotics/automation, the next round of outsourcing will be driven by energy costs. Very few (if any) places in the world can compete with N. America on energy costs. Japan and Europe import most of their energy. China and S. America are too busy building basic infrastructure and Australia is providing raw materials for that growth. North America, therefore, is the logical place for manufacturing to boom.
I'm a buyer of BGG based on this thesis. The 2.5% dividend yield and sub-15 P/E get me over the hump of "good story" to "buyer".
What do you think? Is BGG a buy or a sell? What other companies will benefit from the manufacturing renaissance?
Disclosure: I am long BGG.