Friday's impressive jobs report, which showed aneconomy creating
192,000 new jobs in February, was even more impressive than you
might think. The sheer quantity of jobs created -- nearly 200,000
-- was the best monthly figure in several years, but it's the types
of jobs created that really matter.
The factory sector and the construction sector created 33,000 jobs
apiece, aiding a six-figure jump in service-sector employment. The
factory sector had been shrinking for nearly two decades, while and
the construction sector has been on the ropes since 2007. That now
looks set to change and I've found just the way toprofit .
The virtuous cycle
Service-sector jobs are important, but the factory and construction
sectors really hold the key to a sustained upturn. That's because
they both form the backbone of capital spending, and it's becoming
increasingly clear that cash-rich companies are finally opening the
spigot, laying the groundwork for the coming years. Once the
process starts, it builds a head of steam as companies all along
the economic food chain work to build inventories, upgrade
equipment, and modernize or expand facilities.
In the past few years, many companies have been conserving capital,
citing an uncertain economic and regulatory outlook. But as leading
players in key industries shift gears, all of their rivals need to
follow suit and start making similar investments.
Another reason we're on the cusp of a sustained upturn in capital
spending: companies had been able to generate massive
growth in the past few years by cutting costs. Yet, profit-growth
rates are starting to slow as those efforts play out: Profits for
companies in the S&P 500 are expected to rise just 10% in 2012,
the lowest rate in three years. To keep profit growth at even that
level in 2013 and beyond, companies will have to build profits the
old-fashioned way -- through sales growth. To make that happen,
companies must be in top form in terms of equipment, facilities,
and research and development efforts.
That's why you need to make sure you have a large percentage of
your investments levered to the "goods" part of the
(as opposed to the past decade, when "services" was the place to
be). And in this instance, picking the best horse in any sector
isn't necessarily the way to go -- a rising tide will be lifting
boats in all of the goods-producing sectors. I prefer the
exchange-traded fund (ETF)
approach instead, and these three ETFs could provide you with all
of the exposure you need.
1. PowerShares Dynamic Industrials (
holds a wide range of industrial firms such as
General Electric (
. Nearly three-fifths of its holdings are in companies that make
materials that go into the construction of factories, airplanes and
mining equipment. And if the dollar keeps getting weaker,
as I suspect will happen
, then these companies are likely to be at the forefront of an
2. PowerShares Dynamic Building & Construction (
This fund owns a smattering of home-builders but is mostly geared
toward the more robust commercial construction sector. Companies
have under-invested in their facilities in recent years to conserve
cash, but will soon be modernizing existing facilities or building
brand new ones. Capacity utilization at our nation's factories has
risen more than 10 percentage points to a recent 73% since
bottoming out in early 2009. Historically speaking, investments in
capacity expansions begin when that figure moves into the upper
70s, a rate we're likely to hit later this year.
This ETF traded up to $20 back in 2007 when the economy was on
healthy footing. Now it trades under $14 -- a nice entry point for
those looking to play the coming capital spending boom.
3. Market Vectors Hard Asset ProducersIndex (HAP)
This ETF provides exposure to the capital-spending needs of the
energy and agriculture sectors, both of which look set to sustain
their impressive recent rebound. Companies such as
Archer-Daniels Midland (ADM)
are among the 320 holdings in this ETF. It has recently been on the
rise thanks to surging oil prices, and any further unrest in the
Middle East would power the ETF to new heights.
Action to Take -->
The longstanding decline of the factory sector may be coming to an
end as U.S. manufacturers begin to look especially competitive
against ever-sharp global rivals. The construction sector has
evidenced many periods of health, along with an equal number of
downturns. Both of these groups look set to be firing on all
cylinders in coming years, and these ETFS are solid ways to profit
from the coming boom.
-- David Sterman
P.S. -- According to my colleague, a Russian "nuclear
catastrophe" will hit the United States in 2013… and when it does,
31 million American's will suffer. Amazingly, no lives will be lost
and a handful of energy stocks could rise hundreds of percent. I
know it sounds bizarre, but this bulletin explains what you need to
Disclosure: Neither David Sterman nor StreetAuthority, LLC hold
positions in any securities mentioned in this article.