Much is going awry in the United States, but there’s a wide range of investment opportunities, says Phil Taller, vice president of investments at Mackenzie Investments.
The United States government is mired in debt, but as bad as it is, its debt as a percentage of GDP is less worrisome than that of almost a dozen other countries in the developed world, including Japan, Belgium, and Canada.
Another problem is its educational system. The manufacturing sector is rebounding, but there aren’t enough people with the specialized skills needed for complex engineering and technological fabrication processes.
“Instead of people who can do these things, we have people like the Kardashians, who are famous for being famous,” Taller joked.
A further problem is a familiar one: a dysfunctional political machine. The 112th Congress failed to pass almost 90% of its legislative agenda, while “the second-worst performing Congress failed to pass around 70%,” notes the Center for the Study of the Presidency and Congress.
This dysfunction, Taller notes, gets in the way of economic growth.
It’s easy to jump on the America-bashing bandwagon. But Taller has other ideas. The United States’ entrepreneurial energy is still alive and well—you just need to look in the right places to find it, he says.
The numbers don’t lie: 72% of jobs created between 2009 and 2012 were in right-to-work states, while only 28% were in forced-unionism states.
Right-to-work states are concentrated mainly in the Midwest and Southeast, and some analysts are referring to these areas as new emerging markets.
This makes companies like IBERIABANK Corp., an American regional bank, attractive, Taller says. It’s headquartered in Louisiana, and serves Texas, Alabama and Florida.
Some may be surprised to learn U.S. manufacturing output is not only rebounding, it continues to lead globally. He’s participating in this uptick with positions in Carlisle Companies Inc., IHS Inc., MSC Industrial Direct Co. Inc, and Sonic Corp.
Taller says improvements in the energy sector contribute to this manufacturing renaissance.
“Natural gas production is at record highs, and prices are lower on this continent than pretty much everywhere else in the world. Energy is one third of the cost of manufacturing, so that’s a big competitive advantage for the U.S.,” he explains.
Oil production is also rising, especially in North Dakota—referred to by some as ‘Saudi Dakota’—where it’s “going through the roof, which is why oil imports into the U.S. have been dropping, and will probably continue to do so,” Taller notes.
He also suggests the auto sector as a hot spot for growth. The average age of cars in the U.S. is 11 years, so “it’s essentially a rolling junkyard,” he says.
So, he has a position in Delphi Automotive. The company had a less-than-stellar reputation in years past, and despite a complete makeover, that reputation lingers today.
The company went under during the crisis, and after restructuring it focused on growth areas like safety, fuel efficiency, and electronics.
“It also got rid of its pension obligations and has no UAW labour, so it came out of the crisis much cleaner. But when it IPOed the stock again in November 2011, it kept the old name, which had a really bad smell for most investors.”
Its profit margins and growth beat the industry, but because of its reputation it traded at a discount. This made it a good buy for investors who could separate hard data and fundamentals from market noise.