U.S. Industrials Flexing Their Muscles

As we move into March investors will be watching carefully for signs of economic slowdown in the U.S. and other important regions. Everyone knows by now that the sequester by Congress and President Obama went into effect Friday night. It will be interesting to see if the inaction by Washington will cause investors to back off the recent trend to own more stocks. One sector that has a great chance to sustain growth in 2013 through any economic hiccup is the U.S. industrial sector.

A theme that has been developing since last summer is that diversified industrial companies are making themselves stronger by making strategic acquisitions, streamlining core businesses, and stretching out into new growth terrain. The result of these maneuvers is that many of the global players are in great shape now to benefit from a score of long term growth trends that are now producing higher sales and margins.

I like investing in companies where I can actually see what they are doing and how effective they are in deploying their capital. One of the subsectors that I watch closely is "energy infrastructure." By analyzing many of the top master limited partnerships like Pan All American Pipeline (PAA), Enterprise Products Partners (EPD), and Kinder Morgan Energy Partners (KMP) you see improvements in oil refineries, oil and gas pipelines, and crude by rail. The main point is that serious money is being spent to upgrade the energy infrastructure in this country and these trends will not slowdown despite issues from Washington.

Industrial companies are also playing a significant role in changing the landscape for water treatment, energy efficient controls and systems, smart grid/electrical products, data centers, and photovoltaic solar science. These new areas of growth join commercial and residential construction, automotive and truck production, and commercial aerospace production already under way in the U.S. and other international markets.

From a stock and bond perspective, we are blessed to have numerous high quality companies to invest in that should treat us well over the next three to five years. Companies that look attractive include; Eaton (ETN), Honeywell (HON), Emerson (EMR), General Electric (GE), United Technologies (UTX), Caterpillar (CAT), Joy Global (JOY), Chicago Bridge & Iron Co. (CBI), and DuPont (DD). And, as an additional benefit, most of these companies have a history of consistent and growing dividends.

Finally, we will use any general market weakness into the second quarter to add selectively to this long term growth sector.

Have a great week,

 

Roger N. Steed

March 4, 2013

 

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