President Donald Trump just imposed 25% tariffs on steel imports and 10% import taxes on aluminum.
Those tariffs aren't ideal - and they could lead to a trade war if Trump's team isn't careful.
But the desperate hand-wringing we're seeing from the Washington and Wall Street crowds is, frankly, unseemly.
The Associated Press says that U.S. steel production is doing just fine, because the economy is now growing at roughly 3% a year.
Trade Partnership, a pro-trade business group, predicts that the tariffs will lead to 146,000 American job losses.
And Ira Shapiro, one of the architects of the North American Free Trade Agreement, told CNBC that President Trump "has done incredible damage to our relationship with Mexico, some to Canada and a lot to the European Union, all of which was not necessary and not desirable."
There's a problem here. All this nay-saying presents a simplistic - and I would say false - narrative.
According to MarketLine, steel will be an $865 billion global industry by 2020. And we here in the United States are missing out... almost entirely. Of the world's top 12 steel producers, only one is U.S.-based.
So if we do this the right way - if Trump's seemingly reckless plan gets everyone rushing to the negotiating table - domestic firms will clearly benefit.
That said, Trump's tariffs are far from a panacea.
The steel industry is a laggard in part because it hasn't kept up with the times. And so steelmakers and other metal firms must invest in the innovative digital tech that is transforming so many other industries.
I'm talking about a technology that unites hardware, software, sensors, robotic systems, and more so that steel factories can operate far more profitably.
Today, factory-floor automation technology is worth roughly $109 billion. MarketsandMarkets says that spending in the sector will swell to $153 billion by 2022.
The firm I want to show you today is transforming steel companies - and firms in other hidebound industries - into advanced tech players.
It's minting cash for its shareholders along the way.
And it's about to start a second $1 billion share buyback program - so you'll get paid as you wait for your gains...
From Goat to Hero
To understand what's happened to domestic output, we need to unwind the clock by 45 years. Frank Giarratani, an economist at the University of Pittsburgh, says U.S. steel production peaked in 1973 at 137 million metric tons.
Last year, according to data compiled by Statista, that figure stood at just 82 million metric tons. That's a 40% decline during a period in which real GDP more than tripled to $17.3 trillion.
And while the quality of U.S. steel has improved dramatically, the industry is still well behind China, which is now the world leader in steel, accounting for nearly half of all output. It now makes more steel than all of North America and the European Union combined.
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In fact, China makes too much steel. To cope with overcapacity, the Chinese steel industry is actually laying off some 1.8 million workers and selling steel around the world at sharply reduced prices.
Now here's what I see happening...
The tariffs will encourage China to accelerate its reduction in overcapacity.
Not only that, but they'll help solve a much bigger problem - Beijing's theft, via the Peoples Liberation Army of cyber thieves, of American technology. These tariffs are going to help "persuade" Beijing to stop that practice as well.
If things go that way, Trump will look like a hero - not the goat the mainstream media is portraying him as.
But like I said, steelmakers still need some high-tech help - tariffs or no tariffs.
And that's where my latest recommendation to you comes into play...
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Making Steel Even Stronger
The sophisticated set of software, hardware, and sensors developed and marketed by Rockwell Automation Inc. (NYSE: ROK) is helping several industrial sectors work smarter.
But it's really Rockwell's work with steelmakers that showcases just how vital a partner this firm has become.
Over the last several years, Rockwell has focused on fine-tuning its manufacturing execution system (MES), which enables steelmakers to precisely monitor every aspect of the production process.
Rockwell sees a target-rich environment. That's because metal prices have remained volatile in recent years. Many steel producers have not invested in new tech systems in more than a decade.
Like we've been saying, domestic steel firms will clearly benefit from the new tariffs. But that alone won't be enough to make them more competitive. They also need Rockwell's tools to drive down costs.
MES tech allows metals firms to pull data from nearly any aspect of their operations, from smelting, casting, and stamping processes to total throughput and downtime events. Clients can view data in both real time and against a host of historical markers.
And it's not just the metal makers who benefit. Their own clients stand to gain from Rockwell's many digital applications.
Just look at what's happening with the coming use of aluminum in the U.S auto market. Ducker Worldwide predicts that more than 75% of pickup trucks and 20 percent of SUVs and large sedans produced in North America will be aluminum-bodied by 2025.
So auto firms are clear winners here, too, but Rockwell hardly limits itself to metals and autos. It also sells to the semiconductor, oil and gas, shipping, chemical, and life sciences sectors.
Take a look at some of the projects it's working on...
The "Connected Enterprise"
Rockwell is at the forefront of a new type of "smart factories."
The idea here is to use digital tools, including software packages, sensors, and advanced processors, to make production equipment more intelligent.
And it will all eventually link up with the Internet of Everything, in which some 50 billion devices around the world will be connected to each other over the next several years. The IoE's impact on the global economy, according to McKinsey, will be as high as $6.2 trillion by 2025.
Rockwell refers to the intersection of these two big trends in manufacturing as "connected enterprise" technology.
With connected enterprise tech, headquarters, remote factories, distribution centers, the supply chain, and a firm's clients can all share information like never before.
Rockwell continues to roll out more tools that will accelerate this shift, helping the firm to better target what it believes to be a $90 billion total market opening.
And its own shareholders are benefiting in ways beyond adding new sales. That's because Rockwell has implemented MES and other smart-factory tech in its own operations.
Doing so not only is a great proving ground for potential sales, but it's also helping the firm's bottom line.
Rockwell has lowered its total cost of operations by reducing inventory days from 120 to 82. It also reduced the cost of capital by 30%.
All the while, it's improved productivity by between 4% and 5% a year. And as it continues rolling out MES platforms to its own factories, its profit margins will only get better from here.
The Future Is Now
Based in Milwaukee, Wis., Rockwell Automation has built an impressive 115-year track record, and its 22,000 employees in 80 countries are helping hundreds of firms work smarter.
No single industry accounts for more than 10% of sales.
About half of revenue comes from a dozen different "heavy" industries, such as mining, chip-making, energy, and chemicals. The rest stems from such fields as food production, life sciences, transportation, textiles, power generation, and wastewater treatment.
We recently got a new buying opportunity for the stock. On Jan. 16, shares of Rockwell started selling off in advance of the firm's fiscal 2018 first quarter report. Between then and when the stock bottomed out March 1, Rockwell shares plummeted 15%.
But it turned out to be an overreaction at a time when the broad market was under pressure. It didn't help that, because of the impact of taxes, the firm reported a loss on a diluted share purchase.
However, after adjusting for that and other factors, earnings came in at $1.96, up 12% from the year-ago quarter.
Even better, Rockwell raised guidance and now projects that adjusted EPS for this fiscal year will come in up to 16% higher. Plus, the board of directors authorized the company to spend another $1 billion to buy back shares.
Add it all up and you can see that we have a backend tech supplier that will play a critical role in the coming rebirth of American steel.
And with earnings on the move, we can count on the stock to rally from here.
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The post With or Without Trump's Tariffs, This Tech Play Is Behind the Rebirth of American Steel appeared first on Strategic Tech Investor.
About the Author
Michael A. Robinson is a 36-year Silicon Valley veteran and one of the top tech and biotech financial analysts working today. That's because, as a consultant, senior adviser, and board member for Silicon Valley venture capital firms, Michael enjoys privileged access to pioneering CEOs, scientists, and high-profile players. And he brings this entire world of Silicon Valley "insiders" right to you...
- He was one of five people involved in early meetings for the $160 billion "cloud" computing phenomenon.
- He was there as Lee Iacocca and Roger Smith, the CEOs of Chrysler and GM, led the robotics revolution that saved the U.S. automotive industry.
- As cyber-security was becoming a focus of national security, Michael was with Dave DeWalt, the CEO of McAfee, right before Intel acquired his company for $7.8 billion.
This all means the entire world is constantly seeking Michael's insight.
In addition to being a regular guest and panelist on CNBC and Fox Business, he is also a Pulitzer Prize-nominated writer and reporter. His first book Overdrawn: The Bailout of American Savings warned people about the coming financial collapse - years before the word "bailout" became a household word.
Silicon Valley defense publications vie for his analysis. He's worked for Defense Media Network and Signal Magazine, as well as The New York Times, American Enterprise, and The Wall Street Journal.
And even with decades of experience, Michael believes there has never been a moment in time quite like this.
Right now, medical breakthroughs that once took years to develop are moving at a record speed. And that means we are going to see highly lucrative biotech investment opportunities come in fast and furious.
To help you navigate the historic opportunity in biotech, Michael launched the Bio-Tech Profit Alliance.
His other publications include: Strategic Tech Investor, The Nova-X Report, Bio-Technology Profit Alliance and Nexus-9 Network.