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Tuesday, April 16, 2013

The World's Newest (and Hottest) Emerging Market

NYSE
NYSE (Photo credit: rolfkleef)
By Investment U

Baltimore, Apr.16, stock advice .- What defines an "emerging" market? One of the most useful definitions comes from the fine folks at Wikipedia: "[An emerging market] signifies a business phenomenon that is not fully described by or constrained to geography or economic strength."

Most investors are familiar with the "original" emerging market countries: Brazil, Russia, India and China.

Since 2001, when Goldman Sachs economist Jim O'Neill coined the term, they've been collectively referred to as the "BRIC" countries. In the years since, we've also added Mexico, Indonesia and Turkey to the list.

Now... imagine a globe slowly spinning in front of you. Which country is the world's newest emerging market? I'll give you a few hints:
  • It's less than 300 years old.
  • It has abundant natural resources.
  • It has so much oil, its production is expected to double by 2020.
  • It's already a net exporter of petroleum products.
Still wondering which country I'm talking about? Chances are you're standing in it. It's the United States.

More specifically it's "Middle America."

Samsung Electronics is constructing a $4 billion semiconductor plant in Texas.From the Dakotas, down through Texas, Oklahoma and Louisiana, Middle American state economies are energizing America. What's long been referred to as America's Rust Belt is shining once again.

It is all because of the U.S. energy boom. America has a 10-year head start in extracting natural gas and crude oil from shale. That early lead has resulted in the cheapest natural gas on the planet. Even at $4 per million British thermal units (MMBtu), America's natural gas is one-third the cost of Europe's gas ($12 per MMBtu) and one-fourth the cost of Japan's gas ($16 per MMBtu).

Importing Factories... and the Jobs That Come with Them

All of our cheap energy has created the world's newest "emerging market."

By 2020, the International Energy Agency predicts the world's biggest oil producer will be none other than the United States. So much for OPEC.

And by 2025, Exxon Mobil Corporation (NYSE: XOM) believes North America will become a net energy exporter. Clearly, the ramifications for the U.S. economy are huge.

In a recent Barron's article, Boston Consulting Group's Senior Partner Hal Sirkin commented on what effect the world's newest emerging market will have on the U.S. economy. "[Sirkin] conservatively estimates that 2.5 million to 5 million jobs will be added by 2020, which could shave two to three percentage points from our unemployment rate, now near 7.8%."

So who's coming to this hot new emerging market? Here's a partial list of companies that already have firm plans to build here:
  • Toyota (NYSE: TM) plans to export minivans from its Indiana plant to Asian customers.
  • Airbus SAS is constructing a new factory in Alabama.
  • Whirlpool Corporation (NYSE: WHR) is expanding its U.S. manufacturing.
  • The Dow Chemical Company (NYSE: DOW) has plans for several new specialty production plants on the U.S. Gulf Coast.
The list continues to grow almost weekly. It's ironic that 40% of worldly goods were once made on U.S. soil. Now, it's less than half of that. But scores of companies already working within America's borders will be the big beneficiaries of the newest emerging market.

These Guys Stand to Win Big... and So Do Their Shareholders

I've already mentioned Dow Chemical above. It will provide various chemicals, plastics and other hydrocarbon-based materials to many manufacturers.

One of Dow's neighbors in Texas, LyondellBasell Industries N.V. (NYSE: LYB) is also one of its competitors. It too uses huge volumes of oil and natural gas to produce numerous chemicals and plastic resins.

Last week we wrote about two natural gas refiners that are on the list of big winners. If you missed the article about Southwestern Energy Company (NYSE: SWN) and Stone Energy Corporation (NYSE: SGY), you can read it here.

In addition to cheap oil and natural gas, companies building new factories will need vast quantities of electricity. Calpine Corporation (NYSE: CPN) is an independent power producer. It wholesales power to markets in Texas, California and the mid-Atlantic regions of the United States.

Calpine is primarily a clean-power generator. Most of its plants are natural gas-fired or use geothermal steam turbines. It's positioned in an area of the country where some of the greatest growth will occur.

The last company that stands to benefit has all of its ducks in a row. This company's gains have averaged 30% a year... for each of the last three. I expect their outstanding performance to continue.

You see, they're in the "sweet spot" of supplying oil and natural gas to the world's newest emerging market. In fairness to my paid subscribers, I can't mention the name of it here. Investors wishing more information on the best of the bunch can click here.
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