Made in the USA
Mark is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Not too many years ago, it seemed that the U.S. was losing (or lost) its manufacturing edge over much of the world. Jobs were disappearing. Plants were shutting down. Popular music was rife with lament for the blue-collar worker.
However, the trend is reversing and more things will be assembled here in the future. This will benefit some companies that are moving production back from overseas. The reasons include:
- Lower labor costs due to higher productivity levels.
- Reduced expenditures on energy because of the ongoing shale boom which makes certain processes cheaper to implement.
- Lower transportation costs (no need to use ships or aircraft to move raw materials and finished goods).
- The overall economy will grow, too, and people will have more money to spend on the products.
Items 1 to 3 above will help grow the bottom line, and EPS can increase. Item 4 will boost the top line and revenues will grow.
I'll discuss three companies below that plan to produce more goods in the USA and detail how it might help two of them.
Smaller is better
The chip-maker Intel (NASDAQ: INTC) currently has plants scattered within the U.S. in addition to overseas. But instead of going to Asia, the company is building a new fabrication facility in Arizona, where microcircuits using 14-nanometer (nm) technology will be stamped out starting next year. That's a step down in node size and a step up in computing power from the smallest geometry available today.
Intel needs the skill sets and high productivity available in Arizona in order to produce these innovative new devices which will differentiate the company from its competitors. Sales and earnings will probably increase after the plant comes online.
In spite of a general slowdown in the PC industry, which is a big user of the products the company makes, prospects still look bright over the long term for Intel.
Another selling point for the company is that it pays a dividend, presently at 90 cents, which has been increased regularly in the past. Sales of more chips will keep the juicy payouts flowing. Also, the stock is not expensive, as shares trade at a P/E of only about 12.
South by southwest
Caterpillar (NYSE: CAT), a maker of large construction and mining equipment, is moving some manufacturing from Japan to Georgia and Texas and will create a total of 3,500 new jobs here.
The company has been growing with double-digit gains in EPS and high-single digits increases in revenue reported over the past few years.
The benefits gained from the move back to the U.S. can only add to that performance. Since the company is a big user of natural gas and electricity in its manufacturing plants, lower energy costs (as compared to Japan) will boost profits. The double-digit EPS gains will likely continue.
With the stock trading at only 11 times trailing earnings (and 12 times forward) Caterpillar doesn't look like its overpriced, so it could be considered a value play in addition to a strong fundamental purchase based upon the move back here.
Adding in an annual dividend of $2.40 a share, which has been growing at a 10% clip per year, sweetens the deal. A caveat is that the company has a lot of long-term debt, 150% of equity, which could hamper future growth.
The current king of high tech (and manufacturing in China), Apple (NASDAQ: AAPL), announced that it will move production of one of its Mac computers to Texas. Will it be the Pro or the Mini? Stay tuned.
Recently, for the first time in many years, the company reported a decline in quarterly earnings and gross margin. This has come on top of perceptions that the company has lost its way after the death of co-founder and CEO Steve Jobs in 2011. The result has been a precipitous drop in the stock price from the all-time high of over $700 a share reached last year.
The move to Texas may result in some cost savings, however any benefit will be insignificant.
Apple needs to release new products (where is the iWatch or iTV?) and/or radically improve the existing best-sellers iPhone and iPad, which really butter its bread.
Investors might consider the stock again if Apple can succeed.
As manufacturing is gradually moved back to the U.S., it will mean that financials at companies like Intel and Caterpillar will improve. Investors may want to consider their stock.
In the case of Apple relocating Mac production to Texas, it probably will not make a big impact. Instead, the company needs to return to its innovative ways.
With the European debt crisis and slowing growth in China many investors are worried about heady growth going forward, but fear not, because: The Future is Made in America. Domestic manufacturing is poised to once again become the investment driver of the world, and all because of one disruptive technology. You can uncover the three companies that will become the American Steel of tomorrow in The Motley Fool's new free report. Just click here to read more.
Mark Morelli owns shares of Apple. The Motley Fool recommends Apple and Intel. The Motley Fool owns shares of Apple and Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!