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Cormac Weldon: a new dawn for US equities
by Cormac Weldon on Mar 06, 2013 at 14:52
Consequently, new vehicles are an increasingly-attractive option given the maintenance and fuel-saving costs involved, and the cheap financing deals that are on offer. Unsurprisingly given this background, US car sales rose by 13.4% in 2012 to 15.3 million, marking the best year for the industry since 2007.
In this area we favour AutoNation, the largest car dealer in the country. The business is benefiting from the revival in car sales as well as the associated growth in parts, servicing and warranty revenue and the profits derived from supplying finance to customers.
It is also well placed to enhance its growth by expanding its franchise given the fragmented nature of the car dealer business in the US. Many car dealership owners are nearing retirement and therefore willing to listen to potential offers for their business.
America's new age
The booming oil and gas fields of North Dakota provide another clue as to the likely direction of the US economy is the coming years.
The exploitation of shale petroleums has transformed the State’s prospect and promises to do the same to many other parts of the US in the coming years. North Dakota now has virtual full employment, and the State budget showed an estimated surplus of $1.6 billion in 2012. Critically, the low cost of shale gas is giving US manufacturing a critical competitive cost advantage in the global marketplace.
Indeed, we believe that low natural gas prices - the price of natural gas is only a quarter of what it was in 2008 - is fuelling an industrial renaissance.
The plastic industry provides just one example of America’s new edge in manufacturing. Ethane, a by-product of natural gas, is a key input in the production of ethylene in the US, an essential plastics ingredient; the price of ethane has plummeted in recent years down c. 70% in 2012 alone.
LyondellBasell, one of the world’s largest independent chemical companies, is one of the stocks that we like in this area. The firm is the world’s largest ethylene producer and is gaining share over its global competitors who use more costly oil based derivatives to produce plastics.
Given this economic background it is not surprising that US equities have done so well recently.
But despite these gains we believe they continue to offer attractive value to medium and long-term investors given the positive developments that we expect to continue to unfold across America in the coming years. Indeed, it could well be that we are at the beginning of another American century.
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