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Manufacturing Stocks: How Are They Faring?

China continues to dominate the manufacturing sector with its big talent pool at affordable rates and low cost of supplies. The sudden expansion in the December of 2012 of China’s manufacturing sector boosted optimism in the world’s 2nd biggest economy. The recent upsurge in the performance of the Dow Jones is bringing euphoria to the economy. The US is poised to take advantage of the housing sector recovery.

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Manufacturing accounts for 12% of the US economy and led the recovery that began in June 2009.

The US is the 2nd largest manufacturer of cars and vehicles in 2011. This sector continues to be one source of growth.

The US also has the 6th largest natural gas reserves. This is a big boost to the manufacturing sector.

Improvement in the housing sector will benefit companies like General Electric (GE) and Illinois Tool Works Inc.(ITW)

Key Drivers of Competitiveness according to Delotte are:

• Talent driven innovation

• Economic, trade, financial and  tax systems

• Cost and availability of labor and materials

• Supplier network

• Legal and regulatory system

• Physical infrastructure

• Energy costs and policies

• Local market attractiveness

• Healthcare system

• Government investment in manufacturing and innovation

 

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More consumer spending will benefit the manufacturing sector as a whole. Added to this is the research support in universities and national laboratories. More policy actions will also be crucial to the manufacturing sector.

Fisher Investments Ken Fisher is bullish on the big stocks. Size matters when it comes to his stock picks. His stock picks are very easy to recognize and even the most wary investor will take notice. These are his premium picks for 2013.

• Microsoft (MSFT)- the leader in operating systems

• Schlumberger (SLB)-world’s largest oilfield-services firm

• Royal Dutch Shell (RDS)- a big energy supplier

• Home Depot (HD)- a leader in household supplies

• Philip Morris International (PM) – the giant tobacco company

Of those mentioned by Fisher, Home Depot is riding the wave of the housing construction and improvements. Schlumberger and Royal Dutch Shell are providing the impetus for the manufacturing strength. Microsoft is relying on its pool of talents. Philip Morris is taking advantage of physical infrastructures and local market attractiveness. Another stock pick of his not mentioned in the article is Pfizer. This is because of the growing advantages in the healthcare system.

American manufacturers are optimistic about the spending and sales outlook for this year. Factories will expand and support the economic recovery. Expect higher sales growth and more jobs to be created in the coming months.This is good for the economy as a whole. Smaller manufacturing companies will also benefit from the trend. They have to keep in mind the key drivers of competitiveness.

Things to watch out for are uncertainties in policies and high cost of labor. It is going to be a bullish year for the manufacturing industry, given the recent trends that were mentioned.

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