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 Corporation (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 Corporation (NASDAQ:INTC) 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 Corporation (NASDAQ:INTC).
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 Inc. (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 Inc. (NYSE:CAT) 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.