The Next Boom
Cheap natural gas and increasingly competitive labor costs are bringing factories and jobs back to the U.S. Eight ways to win.
As the only industrialized superpower not decimated by World War II, the United States once made nearly 40% of the planet's goods. These days, that number has shrunk to 18%. We make American Girl dolls in China, Levi's jeans in Mexico, and enough movies in Vancouver to nickname it Hollywood North.
After decades of outsourcing, however, the U.S. is quietly enjoying a manufacturing revival, and companies like Apple (ticker: AAPL), Caterpillar (CAT), Ford Motor (F), General Electric (GE), and Whirlpool (WHR) are making more of their goods on American soil again. It isn't just U.S. companies that are drawn to our cheap energy, weak dollar, and stagnant wages. Samsung Electronics (005930.Korea) plans a $4 billion semiconductor plant in Texas, Airbus SAS is building a factory in Alabama, and Toyota (TM) wants to export minivans made in Indiana to Asia.
The Rust Belt owes its new shine to many factors, including rising wages and industrial-land costs in Asia. But none is bigger than the U.S. energy boom. Thanks to a head start in extracting oil and gas from shales, North America now produces far more natural gas than any other continent. Unlike oil, gas isn't easily transported across oceans, and a result is some of the world's cheapest energy within our reach: Natural gas here costs $3.55 per million British thermal units, versus roughly $12 in Europe and $16 in Japan. Cheap energy not only reduces our trade deficit and our addiction to Middle East oil, it also makes our factories more competitive globally -- a boon for a country that had gone from exporting American goods to exporting American jobs.
The biggest beneficiaries are energy-guzzling companies like chemical producers and steelmakers, and Barron's has identified eight stocks that should prosper in our gas-fueled manufacturing upswing. They are Southwestern Energy, LyondellBasell Industries, Nucor, Dover, Calpine, CF Industries, Williams, and Union Pacific. But any glow will also rub off on regional lenders, home builders, and local small businesses. "The U.S. is the Saudi Arabia of natural gas," declares Nancy Lazar, co-head of the New York research firm International Strategy & Investment. "And Middle America is my favorite emerging market."
Our energy boom got cracking with fracking, a controversial process in which pressurized fluids are pumped through rock formations, often a mile or more under the ground, to extract oil and gas. Critics condemn fracking, which they contend causes environmental harm, but even they agree that it's led to an abundance of cheap gas. Over the past six years, U.S. production of petroleum and natural gas has jumped from 15 million barrels of oil-equivalent a day to 20.1 million, a 20-year high. Over the same period, imports have fallen from 14 million barrels a day to below eight million, a 25-year low.
It's a sign of the times: Graduates from the South Dakota School of Mines & Technology -- acceptance rate: 88%; mascot: Grubby the Miner -- now command a median starting salary 16% higher than that of Yalies....MUCH MORE
