Wells Fargo global market strategist Scott Wren is surprised about how quickly the post-pandemic reshoring process is occurring and it’s a trend that may provide equity opportunities for investors.
Mr. Wren, in a research report this week, noted the shock of many Americans when the pandemic uncovered that many important goods – pain relievers, diapers and toilet paper among them – were not produced domestically.
The upheaval in the global supply chain motivated many U.S. companies to move at least a portion of manufacturing activity back home. The U.S. government was more than happy to stimulate the process with specific emphasis on semiconductors and renewable energy.
There is no data set designed to track the reshoring process, but Mr. Wren notes that U.S. construction activity is much stronger now than is usual yet this time of the market cycle.
The offshoring process was designed to benefit from lower wages in the developing world and Wells Fargo expects that reshoring will have a negative effect on profit margins. However, Mr. Wren adds that “we have been surprised at how quickly reshoring is developing, assisted heavily by technology that offsets much of the labor-cost disadvantage.”
This application of technology, specifically robotics and process engineering used for manufacturing, is where the opportunity for investors may lie. Companies like Rockwell Automation Inc. and Emerson Electric Co. – the latter is “overweight”-rated by Wells Fargo analyst Joseph O’Dea – are likely to benefit as more manufacturing is done in the developing world. European engineering giants, like ABB Ltd. and Siemens AG and Japanese robotics leader Fanuc Corp., also feature prominently in this theme.
-- Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
Ceragon Networks Ltd. is a turnaround company with plenty of potential upside. Despite some losses, the Contra Guys say the stock looks promising, thanks to increasing sales in North America and India and a track record of innovation.
The Rundown
The coming week might offer some reassurance that both households and businesses are holding up in an uncertain macro environment as some of the world’s biggest companies report earnings, and economic data offers a look at growth, wages and consumer spending in the likes of the Unites States, China and Britain. Reuters offers a look ahead.
We now understand how risky variable-rate mortgages can be, writes Salmaan Farooqui. They still might save you money compared with fixed rates.
The Canadian dollar stumbled this week as U.S. inflation data spooked investors, according to Reuters.
Others (for subscribers)
Friday’s analyst upgrades and downgrades
Insider report: President invests more than US$2-million in new company
Globe Advisor
U.S. cannabis reforms could send stocks higher
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Ask Globe Investor
Question: Which rail stock – CN or CP – do you recommend now and for future growth 5 to 10 years out? – Ray V.
Answer: Both are excellent companies, with a strong history of growth. If we focus only on the share price, CN Rail has seen its stock increase by 1,203 per cent since Sept. 1, 2001. CP Rail, now known as Canadian Pacific Kansas City Ltd. has done better, with growth of 1,932 per cent in the same period.
CP’s US$31-billion acquisition of Kansas City Southern in December 2021 greatly increased the company’s footprint in the southern U.S. and Mexico. The company operates 20,000 miles of track, providing connectivity to Canada’s Atlantic and Pacific coasts, the Gulf of Mexico, and a port on Mexico’s Pacific Coast. Since the deal closed, CP stock is up 9.5 per cent while CN is down 5.5 per cent. With the integration of the two railroads continuing, it appears that CP has more upside, at least that’s what the market is telling us.
--Gordon Pape
What’s up in the days ahead
Norman Rothery will offer an update on the popular Halloween Indicator.
Barry Choi takes a look at loyalty programs for beauty brands
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Compiled by Globe Investor Staff