12/12/2013 7:45 PM ET|
3 reasons to invest in 'Made in USA'
Here are three crucial catalysts driving a resurgence in American manufacturing -- and four ETFs that allow investors to ride the revival.
U.S. manufacturers are enjoying a 21st-century renaissance that is riveting stock investors to industrial companies, and many analysts predict this "Made in the U.S.A." theme could be a winner in 2014.
The U.S. economy is recovering slowly but steadily. While productivity and earnings growth aren't expected to soar next year, some surprising recent developments have shifted U.S. industry into higher gear -- especially in the factories and oil fields of America's heartland.
"Middle America," says Liz Ann Sonders, chief investment strategist at Charles Schwab, "is our favorite emerging market."
To explain the stunning economic tailwind behind U.S. industrial companies, and build a solid investment case for the sector, analysts and researchers point to three crucial catalysts.
The Chinese connection
First, the Made in America revival, ironically, was largely made in China. The Chinese economic boom over the past two decades has boosted wages and production costs there, meaning Chinese factory workers' pay, for example, is no longer far below factory pay in the U.S.
As a result, the U.S. now is considered a low-cost, high-quality manufacturing base, according to Boston Consulting Group. U.S. companies operating in China are rethinking offshore manufacturing, with its unpredictable shipping, supply-chain and other bottom-line risks, and increasingly finding that "reshoring" jobs in the U.S. is more economical and stable, BCG says.
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Direct beneficiaries of this game-changer include U.S.-based makers of computers, electronics, electrical equipment, appliances, furniture and plastics, BCG notes. Meanwhile, U.S. spending on domestically made goods is growing faster than imports for the first time in two decades, other than during recessions, according to Bank of America Merrill Lynch research. Tellingly, Wal-Mart (WMT) has pledged to buy $50 billion in additional U.S.-made products over the coming decade.
The energy boom
Second, U.S. energy independence is a boon for industrial companies. U.S. oil production in October exceeded imports for the first time in 18 years, according to the U.S. Energy Information Administration. U.S. oil output is expected to top Saudi Arabia's by 2016, the International Energy Agency says.
Cheaper energy gives U.S. industry a substantial competitive advantage over Europe, Japan and emerging markets. Exporters in key areas including chemicals, machinery and transportation equipment are benefiting from this trimmer cost structure, BCG says.
Skills and innovation
Third, the U.S. offers a high level of talented labor, technological know-how and innovation, while wage inflation is low. This combination enhances America's appeal for domestic manufacturers and makes the U.S. a preferred locale for European and Asian companies to "outsource" production and jobs.
"The U.S. has become much more competitive," says Savita Subramanian, equity and quantitative strategist at Bank of America Merrill Lynch. "It's bullish for the U.S. and even more bullish for companies outside of the U.S. that can come here and improve their own margins."
Several exchange-traded funds offer broad, inexpensive exposure to the S&P 500 Index's ($INX) industrials sector, which is concentrated in large-cap aerospace and defense, industrial conglomerates and machinery stocks. The biggest and most briskly traded is Industrial Select Sector SPDR (XLI). The ETF recently held shares of 65 companies, with more than 25% of the portfolio in General Electric (GE), Boeing (BA), United Technologies (UTX) and 3M (MMM).
Vanguard Industrials ETF (VIS) counts those same four stocks as its top holdings, but the fund is spread across 345 issues.
The iShares ETF holds around 220 stocks, including "support services" names such as management consultant Accenture (ACN) and payroll-services giant Automatic Data Processing (ADP) that aren't typical of the sector.
PowerShares, meanwhile, divides its industrials ETF among 60 large-, mid- and small-cap U.S. and global stocks -- but with a twist. Instead of traditional stalwarts GE, United Technologies, Caterpillar (CAT) and 3M, top holdings include Delta Air Lines (DAL), Southwest Airlines (LUV) and Honeywell International (HON). The ETF's unique portfolio tracks a proprietary index that PowerShares says rates stocks according to 25 factors, including company fundamentals, stock value, timeliness and risk.
The Made in the U.S.A. revival isn't a new investment idea. Industrial-sector stocks outperformed the S&P 500 this year through November, gaining 34 percent versus 29 percent for the index, including dividends. But industrials and other cyclical areas of the economy have room to run, Subramanian says. In part, this is because economically sensitive stocks typically lead the market when growth picks up and interest rates rise. Many market strategists expect rates to move higher next year, once the Federal Reserve scales back its stimulus program.
"We are in the early innings of this," Subramanian predicts. She recalls a recent business trip through the Midwest, where new factories and heavy truck traffic got her attention.
Says Subramanian: "You have to see it to believe it."
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Then Google "america educational standings" too see how far our schools and educational level have fallen with respect to the rest of the world.
My conclusion is that if companies return to the USA then they will import a good deal of their employees from other countries. I am not a tea bagger.. just pointing out these things.
I put the Chinese stuff back on the shelf. It took a long time, but I would much rather pay more for products "Made in America" because I feel like the employees are treated much better and the money stays closer. The problem is I doubt is stays as close as I think. Is this effort futile? Probably. I have no probelm buying from Europe of Latin America as a backup or other Asian countries....they appreciate their workers.
OBAMA WAS "MADE IN THE USA" SUPPOSEDLY.
I AIN'T BUYING HIM!!!!!!!!!!!!!!!!
I FEAR THAT THE REAL DANGER IS NEVER FINDING OUT HOW MANY LIES HE HAS REALLY TOLD!!!!!!!!!
"The fact that we are here today to debate raising America's debt limit is a sign of leadership failure. It is a sign that the US Government cannot pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government's reckless fiscal policies. Increasing America's debt weakens us domestically and internationally. Leadership means that, 'the buck stops here.' Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better."
~ Senator Barack H. Obama, March 2006
I guess they FORGOT about billions of taxpaying dollars down the drain for those "shovel ready" jobs ?
Don't bother - I switched to mostly made in the USA Paper and Plastic Goods - Guess what - People balked at the 50 cents more per items they could get from the Made in China items sold at Wally World and Taget!
People talk big until it comes to their cheap wallets - they don't pratice what they say !
Now we are closing our doors ! People make me sick !
People need to go back to the Bill Clinton NAFTA signing period and judge it not by his signature, but the events leading up to him signing it, who stands behind him as he does and who immediately benefited from it. I'll stick with Romney having plenty to do with it, but I'll expand that blame to the Skull & Crossbones Club membership.
People need to grasp WHY globalization was suddenly "the thing". Inherited companies had taken too much off the top, terminated too many skilled middle management and installed too many college degrees without experience in the middle. Simply, the nation no longer had enough people left to bamboozle.
Globalization was a scam. China saw opportunity because it could by culture, enlist the masses as labor that benefited Hong Kong and Shanghai executives. What they didn't anticipate was the European and American Worker-Customer running out of money to buy cheapness with. India, Russia, Brazil and all the other nations that had previously manufactured product alongside America- simply took over facilities and created indigenous sub-economy. I don't know about you... but I haven't taken my focus off the Skull and Crossbones Inheritors. These are garbage humans in need of wasting, so the world can fracture back into societies and independent economies that arm's-length cooperate for macro-commerce, not slave labor.
SUCH LEFTY DRIVEL.
The economy is NOT recovering. The only job growth is more gubbermint jobs , hiring more and more barely literate step n fetch it's. Try going into a motor vehicle office sometime
Unemployment is STILL over 7 % . 6 years and it's been 7.5-8 % that is a JOKE !!!.
You need 4-5% for a strong recovery and a good economy.
there is no recovery , no jobs. Just "hope"
LOL @ u lefty , lemming , obumabots !
The oil fields ?
You mean the private oil fields that if Papa Doc could, he would close down but is now taking great credit for ?
JUST LEAVE !We`re better off without the crybaby whiners who are always bellyaching.
I've just learned that Santa was black !!
Jesus was black, too !!! (Obuma's relation perhaps, or did he reincarnate himself as our Dear Leader?)
You cannot ever use the word Christmas, or light a Christmas tree, ever.
It is now known as a holiday tree and the time of the year is the holiday season !
You also can't greet people with the words Merry Christmas, must be Happy Holiday's !!
Wouldn't want to offend anyone !! Oh no
HOWEVER, if you are a jew or a sandy, you can print your holiday with impunity , light your menorah and whatever object these muslim heathens use for their holiday (a dripping sword ?) would be just dandy !
Somehow the 80 % of the country that is Christian , THEIR believes , religion , religious symbols , they don't count.
There is no agenda hiding beneath the PC police. No double standard, No hypocrisy
These are the cretins on the left. Lie, blame Bush and take away your rights, one whitey fool at a time
Always remember their racism,. bigotry , etc = GOOD
Yours = BAD !
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