Betting on U.S. Manufacturers

 | Aug 29, 2013 | 6:00 PM EDT  | Comments
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The death of the manufacturing sector in this country has been taken as a truth for many years. No doubt, the number of manufacturing jobs and the importance of manufacturing to the U.S. economy have been declining for years. Yet, in fact, manufacturing is showing signs of life in the U.S.

Boston Consulting Group has just released a study that says the U.S.' exports since 2005 have been growing more than seven times faster than GDP. The report also says that average manufacturing costs in such countries as Germany, Japan, the U.K. and France, among others, will be 8% to 18% higher than those in the U.S. by 2015. BCG is predicting that by 2020, the U.S. will gain $70 billion to $150 billion in annual exports, with two-thirds of these gains coming from production shifts to the U.S. from Europe and Japan.

Part of the gains are due to increasing costs in previously low-wage countries such as China, and part due to U.S. advantages, including a productive labor force and lower costs for such energy sources as natural gas.

I have found three U.S. companies that do much of their manufacturing at home, though they may also manufacture overseas. In addition, all three companies earn very high grades from my guru strategies, which are computerized strategies I based on the writings of some of Wall Street's most successful investors. If you are looking for companies that have proven track records of successful U.S. manufacturing, pay attention to these three.

Polaris Industries (PII) makes power toys for adults, including snowmobiles, all-terrain vehicles and motorcycles, along with commercial and military vehicles. My Warren Buffett-based strategy gives high marks to Polaris. The company has a well-established brand name in many of its markets, giving it a competitive advantage, which this strategy looks for. In addition, it earnings per share has increased in eight of the last 10 years, debt is small enough that it could be paid off from earnings in less than a year, and return on equity has averaged a robust 40.3% over the last decade. The Buffett strategy also estimates how much investors can expect to earn on their investments at today's prices, and for Polaris, the expected annual return is a strong 17.0%.

Another U.S. manufacturer worth considering is La-Z-Boy (LZB), the well-known maker of its eponymous recliners. It also makes other upholstered furniture, including sofas and chairs. One of the strategies I use to find good investments is based on the thinking of Peter Lynch, and according to my Lynch strategy, La-Z-Boy is currently sitting pretty. This strategy relies on the P/E/G ratio, which is price-to-earnings relative to growth, a measure of how much the investor is paying for growth. A P/E/G of under 1.0 is acceptable, and La-Z-Boy's is 0.84. Another plus is the company's very low level of debt.

Also take a look at Lindsay (LNN), which manufactures irrigation systems used in the agricultural industry, industrial tubing and road barrier systems, among other products. Like La-Z-Boy, Lindsay is a favorite of my Lynch strategy. Lindsay's P/E/G is a desirable 0.65, and its debt is very small.

Don't count out U.S. manufacturers. Many are doing well, including these three strong performers.

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