“It’s not as bad as you read in the papers,” CEO Patrick McHale told a roomful of skittish analysts and gloomy money managers. Recession fears lingered in the minds of many, like curls of smoke at a pool hall.
The darkening gloom outside from gathering rain clouds seemed to add to the glum atmosphere. But the companies here had a different tale to tell, as McHale’s comments indicate. They offered rays of good news, which pierced that gloom unequivocally.
What follows are highlights from the Gabelli Pump, Valve & Motor Symposium, which took place in Manhattan, as these things often seem to do. Over a two-day conference, corporate execs from over a dozen companies gave their thoughts on the current state of affairs and shared their hopes for the year ahead.
Pumps, valves, and motors may not sound like hot numbers to you. But these companies operate in that nexus of water, energy, agriculture, and infrastructure. Most make things that move and control liquids and gases of all sorts—from oil and water to sealants and chemicals. The menu of what they do spans an enormous range, like that of an old ’50s diner. And business is good.
To get right to a key take-away from the conference: The futures of companies with overseas operations will look very different from those confined mainly to North America. Most executives warned of slowing business in North America. None complained that anything of the sort was happening in China or India or the Middle East.
“China is not slowing down,” reports Edward Campbell, CEO of Nordson. “It’s accelerating.” For Nordson, a diversified maker of too many things to name, orders in China are up 40% in just the last three months. Over the last five years, Nordson’s China business grew at a blistering 27% annual rate.
This theme was a constant throughout the conference. Companies talked about project successes in China, Qatar, Brazil, and Saudi Arabia.
The conclusion is inescapable: Business is shifting overseas.
China alone contributes more to global economic growth than any other country. It is the first time since the 1930s that a country other than the U.S. holds the top spot.
Chicago-based economist David Hale adds more color to that fact. Perhaps most arresting is this: Over the next seven years, consumer spending in emerging economies may top the U.S. “The current business cycle,” Hale opines, “will go down in the history books as one that confirmed that leadership in the global economy is now shifting from the old industrial countries to the emerging market countries.”
And finally, think of this: What came to the rescue of troubled U.S. financial firms such as Citibank, Merrill Lynch, and Morgan Stanley? It was Abu Dhabi, Singapore, and China. Only 10 years ago, it was Asia that needed rescuing. It was U.S. financial muscle that aided Asia’s troubled financial system in the wake of the Asian Crisis. That’s all different now. As Hale writes: “It is a complete reversal of 20th-century history.”
So it isn’t as bad as we read in the papers—if you are in the right places around the globe. In general, you’ll want to stick with companies that gain from this history-making shift, not the ones cleaving to the old order of things.
One of my favorites is Graco Inc. (GGG:NYSE). Graco makes equipment that moves, measures, controls, and dispenses fluid materials. Its equipment does everything from squeezing tomato sauce onto millions of frozen pizzas to pumping oil. Its customers are all over the economic landscape. Fleet service centers, miners, remodelers, aerospace firms, farmers, food companies—basically almost anything you can think of.
About 40% of sales come from overseas, where business is booming. China is up 22%. Southeast Asia is up 23%. Eastern Europe is up 48%. Africa and the Middle East are up 19%. India is up 62%. These are the markets that will drive the results going forward.
The company’s products helped outfit automotive plants in Thailand, China, and India. In Vietnam, wood furniture makers used Graco’s stuff to apply finishes. In China’s Pearl River Delta, Graco provided the coating for new iPods and MacBooks, as well as cell phones and other electronics. In Australia and New Zealand, mining booms helped it to a 75% increase in sales.
Because it’s international business, Graco is a good example of the kind of company that should thrive in today’s markets. Investors ought to do well.
About the author
Chris Mayer is the author of Invest Like a Dealmaker: Secrets from a Banking Insider and editor of the investment newsletter Capital & Crisis .
He scours the globe for value-oriented opportunities in the stock market capitalizing on the big trends in today’s markets. You can contact Chris at capitalandcrisis@agorafinancial.com .