This column has been revised to include updated information on Apogee and Otis.
Here's something that doesn't matter one whit to the big-time money managers who spoke at Delivering Alpha: the blowout numbers we got last night from Apogee Enterprises (APOG) .
Don't know Apogee? Totally understandable. Unless you are in the business of construction of non-residential buildings, there really isn't any reason to know them.
Why do I know them? Because I am in the business of trying to figure out how well businesses are doing and one of the most important businesses out there is non-residential construction, the construction of new office buildings -- typically skyscrapers -- but also in large-scale remodeling projects.
I am aware the stock is down today. It's had a great run. But I want you to forget about the stock, and concentrate on what the company has said about its end markets, because we are going to use Apogee as a way to look at business, not as a way to analyze the stock of Apogee, which is pretty much irrelevant to the story.
If you want to know how the non-residential construction industry is doing, because you want a true read on this key portion of the U.S. economy, then Apogee, one of the nation's largest designers and developers of value-added glass and aluminum framing projects, is your go-to gold standard. Apogee is a better nationwide pulse taker than any one bank, or even many banks -- because you never know their market share. It's what I use to figure out what kind of demand there is out there for large-scale projects like the World Trade Center, a gigantic building that doesn't get built, no matter what the subsidies, if there's no one to put into it.
And the answer: Business is stunningly good. "Second-quarter results were outstanding and we delivered record quarterly revenues, operating margins and earnings per share," the company announced in a release last night.
Revenues were up 16%. Earnings-per-share outlook increases for from $2.70-$2.85 to $2.80-$2.90.
The billion-dollar-in-revenues company, which is almost entirely domestic in sales and operates nationwide, went on to say, "The strength we are seeing in our non-residential construction end markets is evident in the results from our architectural segments. All three architectural segments grew revenues and operating income with operating margins all increasing more than 200 basis points."
In other words, there's nationwide strength in office tower construction, a huge provider of jobs and materials.
So how do you use Apogee in this light? I do it like this. Aluminum, a major building block of the skin of buildings, must be in better demand than previous quarters. That, when combined with strong auto sales, makes me feel better about our Alcoa (AA) position for Action Alerts PLUS.
PPG (PPG) , which makes architectural coatings, could be doing better than expected, especially when you combine it with the comments made by Toll Brothers (TOL) CEO Doug Yearley on Mad Money last night about a further pickup in housing sales since the quarter's over. Remember, Yearley said deposits -- the key metric to analyze his housing business -- have accelerated year over year in the ongoing quarter from a very impressive up 23% to an amazing plus 25%. That's pure strength, although of a totally different kind from non-residential construction.
Who else could be gaining because of the robust nature of Apogee's end markets?
Honeywell (HON) , United Technologies (UTX) and Johnson Controls (JCI) could be getting a boost from climate controls and heating, ventilation and air conditioning, at least in this country, still the most important market other than China. United Technologies' Otis division could be seeing a pickup in elevator orders.
Eaton's ETN office electrical control systems and lighting businesses might be stronger. Herman Miller (MLHR) office cabinet and furnishings should be staying robust, important given its 20% increase already this year. If you own it, maybe you should keep it. You get a dip then maybe you buy shares in the largest office furnishings company.
Regional banks might be doing better in their construction loan departments, maybe so well that a rate increase might not do the damage people think it could.
But wait, you might say, this Apogee news could all be rearview mirror. Well then, how about this statement: "We continue to see strong non-residential construction market conditions and order activity and have extensive visibility to future work, giving us confidence in our outlook for fiscal year 2017 and beyond."
To me, that's the evidence I am looking for.
If you go back to the Delivering Alpha conference, there was a uniformity to their warnings of danger: The Federal Reserve's low interest rate policy isn't working. We are in a no-growth world.
But are we? How do we just dismiss Apogee's news? The answer is simple: These guys are so removed from this kind of boots-on-the-ground intelligence that it is irrelevant to their thinking. It doesn't matter. They are busy shorting bonds or going long currencies or looking for countries with sagging economies. I am looking for clues that companies could be performing better than we think despite the gloom, so they might be trumping earnings estimates and their stocks might go higher.
We might as well be in two different businesses, but only one can really make you money. My business.
When in doubt, go with Apogee, not the apocalypse. The latter's terrific as a scary Andromeda Business/Walking Dead Strain. The former? It's about investing wisely. Take your pick.
