With COVID-19 still hurting lives and livelihoods in the U.S. and the unemployment rate still at multidecade highs, predictions or promises of vast numbers of new U.S. jobs may seem like fantasy or wishful thinking. However, some observers believe that manufacturing jobs may in fact come back to the U.S., and some say the trend has already begun.
One big factor is the ongoing trend of rising wages in China, where many manufacturing plants are located. When coupled with transportation and tariff costs to move goods and components halfway across the world, the U.S. is starting to look like a competitive option.
Lots of companies would benefit from large-scale onshoring of manufacturing operations, so it's hard to pick just four possible winners. But these top companies would each be poised to benefit for different reasons.
Manufacturing often means steel, and in the U.S., steel means Nucor (NYSE:NUE), the largest steelmaker in the country.
Not only is steel used in obvious manufacturing sectors like the auto industry or appliances, but many plastic or wood products like toys and furniture rely on steel components like bolts, screws, and frames. Nucor primarily makes rolled steel sheets but also supplies steel bars, wire, and tubing. Almost all of its operations are in the U.S., so more domestic manufacturing activity would give Nucor a big boost.
Nucor's dividend currently yields about 3.5%, and despite the U.S. steel market proving surprisingly resilient in the second quarter of 2020, shares are still down for the year. Now would be a great time to buy if you think U.S. manufacturing is set to take off.
2. Rockwell Automation
Wages may be increasing in China, but they're generally higher in the U.S., and required benefits and protections for workers are also more robust here at home. Companies can keep costs down, though, by investing in automated systems for their factories and robotics to supplement their staffs. In the age of COVID-19, robots can also help maintain required distancing while still keeping things running on a factory floor.
Robotics and automation specialist Rockwell Automation (NYSE:ROK) agrees. On its recent Q3 2020 earnings call -- for the period ended June 30 -- CEO Blake Moret said he believes the pandemic is "accelerating the need for industrial automation and digital transformation solutions that address manufacturing safety as well as operational flexibility and resiliency ..."
As the largest U.S.-based provider of factory automation systems, Rockwell would definitely benefit from more manufacturing at home.
3. STAG Industrial
You can't manufacture something if you don't have a place to do it. STAG Industrial (NYSE:STAG) is a real estate investment trust (REIT) that owns factories, manufacturing plants, and other industrial locations, which it leases to clients large and small.
STAG deliberately avoids buying real estate in expensive major markets, instead focusing on cheaper markets in smaller cities and suburbs or exurbs of larger ones. For manufacturers looking to save money, leasing space -- rather than owning it -- in a less-expensive market is an appealing prospect.
Of course, STAG has a limited supply of real estate, so it's not like it would necessarily capture a large share of repatriated factories. But a larger pool of potential manufacturing customers would augment STAG's already-booming e-commerce fulfillment center business. As a REIT, it also pays a generous dividend, currently yielding 4.4%.
4. Berkshire Hathaway
Warren Buffett's iconic company Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) is known for its insurance operations and for owning a large portfolio of investments in other companies. While manufacturing jobs coming back to the U.S. will certainly require insurance policies, Berkshire is more likely to see a boost to some of its wholly-owned subsidiaries, including:
- BNSF: More domestic manufacturing would mean more demand for shipping of parts and finished goods. This railroad is just one shipping company that would stand to benefit.
- IMC International Metalworking Companies: Owns U.S. (and international) makers of cutting and grooving tools for industrial applications, including manufacturing.
- Precision Castparts: Makes complex components used in manufacturing everything from aircraft engines to power turbines to cars to medical equipment.
- Precision Steel Warehouse: Based in Illinois, it doesn't manufacture steel (that's Nucor's job), but prepares raw steel for use in manufacturing by cutting sheets and coils to precise lengths and widths, finishing edges, and performing other work that saves manufacturers time and floor space.
Lots of unknowns
Even if some manufacturing is already being repatriated to the U.S., there's no guarantee that a mass movement to bring back U.S. manufacturing will be quick, smooth, or even happen at all. There are other countries with cheap labor besides China, and the pandemic, trade concerns, or any number of other variables could accelerate the process...or push it back indefinitely.
But if it happens -- and I think there's a decent chance it might -- Nucor, Rockwell Automation, STAG Industrial, and Berkshire Hathaway look poised to benefit.