In this clip from Industry Focus: Energy, Motley Fool analysts Sean O'Reilly and Taylor Muckerman explain what President-elect Donald Trump has said about U.S. industrials, where his plans to build a wall with entirely U.S. industrial equipment has a few flaws, and why protectionist purchasing mandates are probably not a good idea.
A full transcript follows the video.
This podcast was recorded on Nov. 10, 2016.
Sean O'Reilly: The other thing I wanted to touch upon briefly was the industrial space. In tandem with the commodity cycle right now, as well as low oil prices, because you need a Caterpillar (NYSE:CAT) truck to get oil sands, we're all connected. One of our writers, Neha Chamaria, she wrote a fantastic piece the other day, "How a Donald Trump Presidency Could Affect Caterpillar Stock," but anecdotally, I do think this affects the entire industrial sector, with machinery, and...
Taylor Muckerman: Yeah, and not only just mining, but supporting infrastructure spending to a pretty large degree. That was one thing you saw...
O'Reilly: You want him to spend $1 trillion on infrastructure.
Muckerman: ...you saw Hillary and Donald both agree on during their campaigns -- the need for infrastructure spending in the United States, and not just earlier on in President Obama's first term, where he just said, "Let's go pave a bunch of roads." They're actually suggesting real infrastructure spending.
O'Reilly: Unsurprisingly, Caterpillar stock went up a bunch yesterday. It's up another 2.5% today. On the campaign trail, even as early as this year -- this is actually from a campaign speech in January, so it's even a bit older. It's been a theme. He said in January, Trump reflected on how a weak yen is hurting Caterpillar. "Friends of mine are ordering Komatsu tractors now because they've devalued the yen to such an extent that you can't buy a Caterpillar tractor, and we're letting them get away with it, and we can't let them get away with it." We can get in all kinds of debates about currency ...
Muckerman: This is not an economics show.
O'Reilly: ...another time. But, bottom line, investors are interpreting this as, he wants to help manufacturing ...
Muckerman: He wants to help manufacturing in the United States. I get it. But it's a global economy.
O'Reilly: We're all connected.
Muckerman: For now, at least. And then, hinting at the fact that, if he does end up getting the wall built, he'll only use Deere or Caterpillar equipment. Cool in theory, but then... OK. Petrobras (NYSE:PBR). Major oil and gas company, integrated company, in Brazil, struggling for years because they have a mandate to use Brazilian employees, Brazilian equipment, and sell gasoline at subsidized prices, and they have to buy it on the open market at higher prices to sell it to them, because they're not producing enough to do that. So, yeah, I don't know. It just doesn't make any sense.
O'Reilly: Are you arguing against protectionism, Taylor? [laughs]
Muckerman: [laughs] Somewhat. I'm just giving an example of what it looks like, and how it's performed poorly by not allowing the use of the most competitive environment.
O'Reilly: The bottom line is, to your point, it's a double-edged sword, because in 2015, guess how much of Caterpillar's sales came from North America?
Muckerman: 20%?! 30%?!
O'Reilly: Little higher, 46%. But, bottom line, 54% of their sales came from abroad. And if we go protectionism, they, of course, won't make that.
Muckerman: Yeah, exactly.
O'Reilly: So, what do you want to do?
Muckerman: There's a whole lot at work, here.