Three Ways to Play the U.S. Export Boom

By Michael Brush
Exclusively for InvestorIdeas.com
May 15, 2008

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You can usually tell when we are at extremes in the market - because obviously nonsensical ideas begin to circulate widely and masquerade as intelligent analysis.

Here's a great example.

For months I have been writing that dollar weakness will continue to spur exports, help offset housing sector weakness, and pull us out of the economic quagmire created in part by exaggerated fears of damage from subprime risk.

Around the time of the market lows in March this thesis was rejected out of hand by otherwise intelligent commentators with the retort that the U.S. “doesn't export anything anymore except scrap metal.”

Just scrap metal. Wow.

It was a great example of how silly notions morphing into conventional wisdom can signal the kind of sentiment extremes that mark lows.

After all, it doesn't take much digging around government statistical databases to see that metals rank quite low on the list of export items. They don't show up until 14th and 15th place on this one .

In contrast, the top of the U.S. export list is dominated by high value-add products showing off good old American know-how and ingenuity. U.S. exports are dominated by sophisticated products such as aircraft engines, nuclear reactors, transportation and farming equipment, sophisticated surgical equipment, and chemicals.

In other words, you can scrap the scrap metal myth.

Weak dollar continues to boost growth

And as Goldman Sachs (GS) economists reported earlier this week, trade improvement continues to provide “substantial support” for U.S. growth. As of March, exports of goods were up 14.2% year-over-year in nominal terms, and 6% in real terms. Trade contributed about a percentage point to GDP growth over the past year.

Much of the recent growth reflects the commodity boom. Industrial supplies, which include energy products, grew 10.2%, in real terms in the first quarter compared to the year before. Food, feed, and beverages grew 19.3%. Capital goods, the largest category of exports, was up 6.8% in real terms.

True, there was a recently a slowdown in the U.S. exports. But Goldman Sachs economists dismiss this as noise. I'd agree because - even though the dollar has firmed slightly of late - it's still quite weak compared to most foreign currencies, as any traveler knows.

Because the dollar is still so weak, I'd expect U.S. companies that sell abroad or have foreign exposure to continue to do well going forward. In the past week, insiders have been pointing the way to some good plays on the cheap-dollar induced export boom.

Here's a quick look.

Colfax (CFX)

As regular readers know, I consider significant insider buying on an initial public offering (IPO) to be a good signal. That's what we saw earlier this week with Colfax (CFX) a U.S.-based company with great foreign exposure. The company sells fluid handling products like pumps and valves through distributors in 79 countries. About 66% of 2007 sales in 2007 were from outside the U.S.

Colfax has a strong market position and leading brands in its space dating back to 1860, including brand names like Allweiler, Houttuin, Imo, Warren and Portland Valve. The company gets repeat business of sorts in that it has a large installed base. This means customers constantly need to replace parts, and ask for maintenance service. Repeat business accounts for 25% of sales.

Bruker (BRKR)

Bruker (BRKR) quadrupled in less than three years after I suggested readers consider buying it in June 2005.

The company makes high-tech gear used chiefly by scientists searching for new drugs. Its main products are mass spectrometry and X-ray equipment that help researchers learn more about things like molecules, proteins and chemical compounds.

Bruker is a great play on the weak dollar because it sells a lot of equipment abroad.

However, recently its stock got hammered by a currency mishap.

Back in February, it purchased a company based in Switzerland called Bruker BioSpin which also sells research tools. The company had large cash balances in non-Swiss currencies. So when the Swiss franc shot up in value in the first quarter, that cash lost so much value Bruker had to fess up to a $12 million foreign exchange hit.

The stock got hit, too, which seems kind of dumb to me because this is a one-off event that has little to do with the strength of the underlying business. Plus the company is hiring experts to make sure a similar mishap doesn't occur.

Bruker chief Frank Laukien agrees with me that the downdraft in the stock was dumb, at least judging by his purchasing. He recently bought $1.8 million worth of the stock in the pullback. He's got a great record for knowing when to buy his stock. He was among those buying on the original insider signal I picked up back in 2005.

ACI Worldwide (ACIW)

Likewise, ACI Worldwide (ACIW) performed well after I suggested readers consider buying it back in January of this year .In just three months, the stock advanced over 50% to $22 from $14.

Recently, though, the stock took a big hit on an earnings miss, and the same insiders were buying again in the upper $17 range.

ACI Worldwide, which sells electronic payment software used by international banks and payment processors, is a viable play on the weak dollar because it does so much business abroad.

The bottom line: It always pays to have lots of contact with various market players so you can spot when dumb ideas get wide acceptance. This can signal its time to bet the other way. Right now, conventional wisdom still seems to think the U.S. can't export - so it's a great time to bet on plays in the other direction.

Disclaimer
At the time of publication, Michael Brush did not own or control shares in any of the companies listed in this column. Mr. Brush is an independent columnist for this web site.
For more on Insiders Corner disclosure, see the disclosure section in About Insiders Corner: http://www.investorideas.com/insiderscorner/. InvestorIdeas.com Disclaimer: www.InvestorIdeas.com/About/Disclaimer.asp. InvestorIdeas is not affiliated or compensated by the companies mentioned in this article.

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