U.S. manufacturing jobs are coming back home — and these industrials stand to gain
The Club's industrials are set to profit from a burgeoning trend of companies bringing manufacturing jobs back to the U.S. from overseas. The emphasis on domestic manufacturing — combined with a raft of government spending on infrastructure — is allowing many American industrial firms to deftly navigate a slowing economy, with potentially significant long-term rewards for investors like us. In a note to clients Wednesday, Mizuho listed three Club stocks as beneficiaries of so-called reshoring in their respective fields: Emerson Electric (EMR) in automated manufacturing processes; Honeywell International (HON) in energy and infrastructure; and tool maker Stanley Black & Decker (SWK) in construction. Reshoring, or onshoring, denotes efforts by U.S. manufacturers to move production closer to home. More broadly, Mizuho took a bullish position on the impact of infrastructure and reindustrialization projects on the industrial sector — a view we share. Mizuho rates Honeywell a buy, while maintaining the equivalent of a hold rating on both Emerson Electric and Stanley Black & Decker. As companies reconstruct supply chains in the wake of the Covid-19 pandemic, Mizuho analysts see a multiyear revenue benefit for Western industrials. "It would be naïve to think we wouldn't see some industrial-related slowing as central bank tightening aims to cool demand," the analysts wrote, "but underlying momentum around energy efficiency...electrification, infrastructure and re/de-shoring themes could provide some buffer." Mizuho's analysis comes as industrial stocks have recently started to show signs of life , with Wall Street's rally broadening out from technology. So far in June, Emerson has been among the best-performing Club stocks, gaining nearly 18%. EMR YTD mountain Emerson Electric's year-to-date stock performance. Mizuho's favorite avenue to play the reshoring theme is electrical equipment companies, including power management firm Eaton (ETN) and electrical parts maker Hubbell (HUBB). But companies that enable manufacturing automation, including Emerson, follow closely behind as "core beneficiaries" of the reindustrialization cycle, according to Mizuho. Emerson — a company we've held onto, despite frustration over its deal to acquire National Instruments — has the manufacturing expertise to help companies overhaul their assembly lines with more automation as they relocate those processes within the U.S. "Reshoring continues to be a prevalent topic among our customers and we expect near and longer term benefits from this trend," Emerson's former CFO, Frank Dellaquila, said in May. Mizuho offered more favorable commentary on Rockwell Automation (ROK) than Emerson, citing Rockwell's larger exposure to discrete manufacturers. But at the Club, we prefer Emerson over Rockwell because of its valuation discount — a point that Citigroup analysts drove home in a note to clients Thursday, while maintaining a buy rating and $107-per-share price target. Citi argued that shares of Emerson "present attractive current value" versus industrial rivals, noting management's "strong history of execution" should convince skeptical investors over time and help close that valuation gap. Emerson shares trade around 19 times-forward earnings estimates, according to FactSet, while Rockwell trades at 25-times forward earnings. Meanwhile, Mizuho pointed to Honeywell as one of the companies offering a more diversified way for investors to gain reshoring exposure. The North Carolina-based conglomerate has a number of automation-focused offerings, ranging from warehouses to the oil-and-gas industry. Its building technologies' segment benefits from its capabilities around energy efficiency. Mizuho also sees growing spending on construction projects benefiting Stanley Black & Decker, which operates an industrial segment that sells components to other manufacturers and tools used for building roads and bridges. We initiated a small position in the company last week based on its turnaround-story potential. Caterpillar (CAT) and Linde (LIN) are Club holdings beyond the trio highlighted by Mizuho also poised to reap the rewards from increased capital spending in the U.S. Our investment in Caterpillar is predicated, in large part, on the wave of federal infrastructure spending set to be dolled out in the coming years. Linde's business, meanwhile, is aided by a slate of investments in semiconductor manufacturing capacity, which include a number of major projects in the U.S. Companies including Taiwan Semiconductor Manufacturing Company (TSM) have announced more than $100 billion in near-term investments in U.S. chip manufacturing, according to Mizuho. That's good news for Linde because it supplies the industrial gases needed at chip-production facilities, known as fabrication plants. (Jim Cramer's Charitable Trust is long HON, EMR, CAT, LIN and SWK. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Workers produce some of the specialized valves at Emerson Electric Co.'s factory in Marshalltown, Iowa, July 26, 2018. Timothy Aeppel | Reuters