Industrial stocks have been beaten down over the last few weeks, but the tide is starting to turn. China released positive economic data that will help curb the uncertainty of this market, and Alcoa Inc (NYSE:AA) gave us its projected growth by sector. It is time to take a look at the companies that will benefit the most from China’s strengthening economy.
China posted a trade deficit for March, surprising analysts. Imports rose 14% year over year, blowing past expectations for an increase of 5%, while exports rose just 10%. The rise in imports was caused by increased demand for commodities, most notably copper and oil. Copper and oil are crucial for the construction, power generation, and heavy machinery manufacturing industries to name a few. With all of this said, it seems China is getting ready to make some moves.
On April 8, Alcoa Inc (NYSE:AA) reported quarterly earnings, and CEO Klaus Kleinfeld noted the growth in China. He stated that sales were increasing from the high demand of vehicles and the increased use of aluminum cans. Ford Motor Company (NYSE:F) had mentioned the same thing about vehicle sales, because trucks are the hot items in China.
Here is Alcoa’s breakdown of China’s projected usage for 2013 vs. 2012:
- Automotive: 7%-10% growth
- Heavy truck and trailer: 12%-16% growth
- Beverage cans: 8%-12% growth
- Commercial building and construction: 8%-10% growth
CAT’s sigh of relief
It was getting ugly for Caterpillar Inc. (NYSE:CAT) when the global economic outlook was in question. We watched its stock fall over 15% from $99 on Feb. 1 to $84 on April 3. However, the positive outlook in China has caused it to rebound above $86 and it has plenty of room left to run.
China made up 27.3% of Caterpillar’s fourth-quarter revenue and contains over 30% of its global dealers. This has become its top strength after the economic release and it is the number one beneficiary to the increased mining and construction that will take place. Caterpillar had a record year in 2012 and I think 2013 has the potential to be even more impressive.
2012 financials vs. 2011:
- Net sales increased 10% to a record $65.9 billion
- Profit per share reached a record $8.84, a 15% increase
- 19th consecutive year of dividend increases
Jumping for Joy
A direct play on the increase in mining would be Joy Global (NYSE:JOY). Joy is a worldwide provider of mining equipment and services, and China is one of its largest markets. The top commodities mined by its equipment are coal, iron ore, and copper, all of which will be in high demand in China.