If you ask me, I think there can be little doubt we are heading into a worldwide recession again. Europe may be ahead of us in this pell-mell rush down, but make no mistake, the U.S. is still declining. Eurozone manufacturing contracted for the 11th straight month as July's data, which was released overnight, showed a worsening malaise. Chinese factory activity hit an eight-month low, and U.S. manufacturing contracted for the second straight month as employment fell to a two-and-a-half year low.
As one market analyst said, "The manufacturing numbers are pretty dismal. There's really no good way to read them." Europe's in a deep hole, which the U.S. is climbing down into, and even China is peering over the lip. The strain on finances is showing.
Lack of drive
Europe's auto industry, for example, is estimated to have 20% more capacity than it needs to meet withering demand. While sales ticked higher in Germany, the rest of the continent is in turmoil with sales down 14% in France and 22% in Italy. General Motors and Ford
And when the tide goes out on the industry, its suppliers are left wallowing in the muck. While Johnson Controls
That was also evident in the condition of Exide Technologies
With a high debt-to-equity ratio and analysts questioning where growth might come from, it's understandable they'd be willing to give it a pass. Standard & Poor's is worried about rising input costs impacting its ability to raise prices, particularly in the face of soft automotive demand here and overseas.
Yet, I've rated Exide to outperform the market on Motley Fool CAPS because of the potential for new technologies like start-stop as well as its entrance into electric vehicle batteries, despite reservations I have about the overall health of that industry. With companies like Ener1 and A123 Systems failing miserably at the task, perhaps a traditional battery maker like Exide can make a better go of it.
Let me know in the comments section below if you agree this underdog can still be the top dog in its industry.
Constructing a growth story
As desultory as the global economy looks, there have been pockets of growth and green shoots where all was previously barren. Housing is surprisingly one of those areas that showed recent strength (well, depending on the numbers you looked at), and homebuilders like Toll Brothers and Pulte Homes
That was enough for Mueller Water Products to be able to turn in a better-than-expected quarterly earnings report the other day as better housing numbers led to increased sales of valves and hydrants. Perhaps more important for future growth, however, was the deal it inked with wastewater utility company American Water to supply it with water meters and automated meter reading systems.
Like Exide, the water products shop carries bucket loads of debt, though analysts are reevaluating their outlook on Mueller in light of its sale of U.S. Pipe and attempts to strengthen the balance sheet. I saw those same efforts conducted by the battery maker, which put it in a favorable light for me, so while I have doubts about an imminent, sustained housing comeback, I'm going to mark Mueller Water to outperform the broad market averages on CAPS, too. I agree it's doing what's necessary to restore good order, and while risks abound, I think it will continue on the path it has set. Let me know in the comments box below if you think it will be flooded with opportunity from its new agreement.
The ball's in your court
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