While investors can never be certain what the future may hold, they may find comfort in owning stocks that have future-proof qualities that help them endure whatever uncertainties are thrown their way. In terms of manufacturing stocks, it could mean seeking out companies that have defining characteristics like a large runway for growth, a strong competitive advantage, or a forward-thinking management team. We've asked three of our manufacturing specialists to weigh in and pick their top future-proof manufacturing stock.
Isaac Pino: I don't know for certain what the world will look like next year -- or even next month -- but I'm fairly confident demand for food will continue to rise over time. It's estimated that 10 billion people will inhabit the earth in 2050, which is expected to require a 70% increase in food production in only 35 years. This industry's hardly going anywhere, and you don't have to be a producer to capture some of the value chain.
Kitchen equipment manufacturer Middleby (MIDD +2.18%) is a smart way to invest in the food industry, especially if you like the opportunity in commercial food service and restaurants. Middleby makes everything from electric pizza ovens to waffle bakers to outdoor Viking-branded grills. And CEO Selim Bassoul has an insatiable appetite for acquiring more heavy-duty kitchen appliances to add to the mix. His success in the kitchen has translated to a 27-bagger stock since the early 1990s, but Bassoul's not finished just yet.
He has a simple recipe for success at Middleby: Gobble up smaller kitchen manufacturers, wring out the costs, and scale the business across the international restaurant industry. It's worked well thus far, allowing Middleby to complement organic growth with strategic purchases to bolster sales, while keeping close tabs on how these investments can boost the bottom line, too.
Both sales and earnings before interest, taxes, depreciation, and amortization (EBITDA) have grown at a mouthwatering pace over the last decade:
While revenue growth has slowed a tad recently -- the latest quarter showed 12% year over year compared to a 10-year average of 20% -- earnings are heating up as profit margins continue to expand following recent acquisitions. In the latest quarter, net income grew 46%, and earnings per share jumped 33% year over year.
Today, Middleby generates roughly $1.5 billion in sales, but it has its eye on a bigger piece of the combined $10 billion global market for food service, processing, and residential kitchen equipment. Whether your family's in the mood for dining out or staying put for a backyard barbecue, Middleby would like to be there to cook your meal, or even cool your beverage. That sounds like a future-proof business model to me.
Steve Heller: When I think about a future-proof manufacturing stock, the first thing that comes to mind is adaptability -- and a track record to back it up. What better company than General Electric (GE +6.68%), which has been in business for over 120 years and possesses a forward-thinking, entrepreneurial spirit, unafraid of challenging conventional wisdom?
Lately, GE has been busy distancing itself from its financial services business, GE Capital, so it can reassert itself as a laser-focused industrial powerhouse that uses cutting-edge technology as a manufacturing advantage. Whether it's 3D printing, robotics, the Industrial Internet, or other advanced technologies, GE's technological initiatives share one thing in common: They seek to leverage technology to improve the manufacturing process and make fundamentally better products. Nowadays, it's almost as if GE should be thought of as a technology company that manufactures things.
To illustrate this point, GE redesigned a conventionally manufactured jet engine fuel nozzle, consisting of 18 parts, as one metal 3D-printed part, which will take to the skies in its upcoming Leap jet engine. Compared to its predecessor, this first-of-its-kind 3D-printed fuel nozzle is more efficient to manufacture from a resource standpoint, five times more durable, and 25% lighter. By 2020, GE has plans to 3D-print more than 45,000 of these fuel nozzles a year, which will likely make history as the largest-scale mission-critical manufacturing run in the history of 3D printing. Talk about staying one step ahead of the competition!
At the end of the day, GE's ability to incorporate cutting-edge technologies well ahead of their maturity shows it's a forward-thinking and highly adaptable company, which I think makes it a pretty great candidate for a future-proof manufacturing stock.
Daniel Miller: If you're looking for a future-proof stock, very few companies can offer you as much cushion for uncertain times as Boeing (BA +2.58%) does. The aviation giant boasts a total order backlog, filled with both commercial airplanes and defense products, of $490 billion at the end of the third quarter. Put another way, that's equal to roughly five years' worth of revenue for Boeing. As you can see below, the backlog continues to hit record highs.
Source: Boeing.
In addition to Boeing's gigantic backlog of orders, the aviation industry is predicted to expand heavily over the next two decades. Consider that over the next 20 years, it's estimated there will be demand for 36,770 new aircraft globally. That amount of airplanes is estimated to be worth $5.2 trillion, and Boeing is poised to take more than its fair share of the orders, along with top competitor Airbus. Furthermore, air travel has consistently grown roughly 1.5% faster than GDP over a lengthy time frame, making it a safer bet for Boeing to beat the overall market in the years ahead.
On top of Boeing offering investors plenty of revenue transparency in the years ahead, as well as a market expected to expand globally over the next 20 years, the stock also boasts a solid dividend to return more value to shareholders. As you can see below, Boeing has consistently hiked its dividend over time and hasn't been afraid to surprise investors with a larger-than-expected increase.
Source: Boeing.
Ultimately, Boeing offers a solid, future-proof stock choice, and as the aviation juggernaut continues to accelerate production rates of its commercial airplanes to improve profitability, its stock price is poised to move higher in the years ahead.
