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A Powerful, Wealth-Building Trend Right Here in AmericaBy
Tuesday, December 4, 2012
The American Industrial Renaissance arrived at my doorstep a few months back...
My natural gas provider – Spokane, Washington-based Avista Utilities – recently sent me a note in the mail. The note said Avista filed with the Oregon utilities commission for permission to decrease the rate its customers pay for natural gas – by as much as 10%. Lower wholesale natural gas prices mean Avista is paying less, and it can pass the savings along to us.
Sound familiar?
Falling natural gas prices and increased supplies are at the heart of a story you've been hearing about in these pages for years now. And they're at the heart of what I call the "American Industrial Renaissance."
The American Industrial Renaissance is a simple – but powerful wealth-building – trend...
Thanks to new drilling technologies, we are unlocking vast new supplies of natural gas in underground shale formations across the country. The increased supply has pushed prices lower. And lower natural gas prices improve the profitability and competitive edge of many American industries – including chemicals, plastics, cement making, steel, power generation, and transportation.
Cheap natural gas produced from the U.S. shale revolution has transformed America into "the low-cost industrialized country for energy," according to the Wall Street Journal. Savings on input costs can increase profits.
This gives U.S.-based manufacturing a huge competitive advantage.
As my colleague Sean Goldsmith recently pointed out in the S&A Digest, German and French manufacturers are now paying three times as much for gas as U.S. plants pay. Japanese companies pay even more. Japanese natural gas prices have routinely been six to seven times more than recent U.S. prices. In June, when U.S. natural gas was just over $2, Japanese natural gas sold for $17.
Cheap natural-gas-powered electricity is a boon to all industry... But if you make materials like plastics, chemicals, and fertilizer, you're in even better shape. One-quarter of the cost of making plastics goes to natural gas. It's almost triple that for fertilizer.
Now, everyone wants to build manufacturing capacity in the U.S.
When I first introduced my readers to this American Industrial Renaissance, I showed them how Wham-O had recently moved 50% of its Frisbee production from China to the U.S.
And for the first time in decades, a new steel plant is going up in Youngstown, Ohio, in the Utica/Marcellus area. The plants cost $650 million to build, and 400 construction workers are currently building it. The 1 million-square-foot plant will make 500,000 tons of steel tubing per year, the kind used to produce natural gas from shale.
The trend continues...
An Egyptian fertilizer manufacturer is building a $1.4 billion fertilizer plant in Iowa. It's the largest U.S. fertilizer plant built in 20 years.
Dow Chemical (NYSE:DOW) and Chevron Phillips Chemical Company (NYSE:CVX) are both planning new multibillion-dollar chemical plants in Texas and Louisiana. Royal Dutch Shell (LON:RDSA) is planning an ethylene plant in Pennsylvania.
Fertilizer maker CF Industries will spend $2 billion boosting its U.S.-based production through 2016. The company's CEO, Steve Wilson, says cheap domestic manufacturing has led to "a complete 180-degree change in our thought process."
Some of the world's biggest companies are lining up to make new investments in this renaissance: Occidental Chemical Company, Chevron Philips Chemical, Formosa Plastics, LyondellBasell Industries, and Eastman Chemical (NYSE:EMN) have all announced plans to either build or reopen new energy and chemical plants in the U.S.
This American Industrial Renaissance offers investors almost countless ways to profit. Exploration and production companies that are early in the next big natural gas shale play can enjoy tremendous returns... Business will boom at processing companies, which purify the natural gas (and sell the byproducts)... And of course, manufacturing companies will save tremendous amounts of money on inputs and energy.
One of my favorite investments here is in pipelines and storage facilities, which will see huge new demand as industry takes advantage of cheap natural gas.
Another obvious winner from all this – and the one that presents the greatest opportunity to earn investment income – is the pipeline sector.
Pipeline operators own the assets needed to transport and store the massive amounts of fuel entering the market. They own assets that can't be replicated. And their profits are not tied to natural gas prices. These guys simply collect tolls... and then pass them onto shareholders in the form of fat distributions (my favorite firms are yielding 5%-7% annually).
Cheap natural gas is fueling the American Industrial Renaissance. As it continues, and our manufacturing sector booms, demand for fuel will only increase. That's why it's smart to own the "toll roads" of this boom... and start collecting large amounts of investment income.
Good investing,
Dan Ferris
Further Reading:
Porter Stansberry recently showed readers his latest take on the natural gas boom. "Despite the huge new supplies," he writes, "I'm bullish on natural gas... To understand my argument, you need to understand why and how natural gas will become a global fuel, with a consistent global price."
Find his full argument here:
Market NotesFOOD COMPANIES ARE BOOMING Today's chart is a reminder that investors don't need to buy complicated, high-risk businesses to generate solid returns.
Longtime readers know we're fans of companies that sell "the basics." Products like soda, beer, and cigarettes are some of our favorite examples. While the companies that make these products might not be "exciting," their steady, profitable businesses generate cash flow for investors.
The latest example is ConAgra (NYSE:CAG), a giant food company that sells a variety of "packaged goods"... The company's major brands include Chef Boyardee canned pasta, Hunt's tomato sauce, and Pam nonstick cooking spray. It's a great business. These products can stay popular for decades. They generate billions of dollars in sales, and they don't require additional spending from the company.
Last week, shares of ConAgra broke out to their highest level in nearly eight years. Sales are growing at a modest, single-digit annual rate. As today's chart shows, ConAgra is in a steady long-term uptrend. Our "basics" strategy is working.
– Larsen Kusick
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