Apparently not everyone is concerned about the future prospects of the Chinese economy or the struggling agricultural equipment industry in the United States. We often speak about the need for investors not to look at current conditions but the long-term historical trends. We spoke earlier about the large merger between two international beer conglomerates and what one of the driving factors was: the growth of the emerging markets’ economies. (Beer Merger)
Many investors are using the slowdown in the Chinese economy to justify the sale of stocks which has led to the decline in prices earlier in the year. If this weakening Chinese condition was a long-term factor, you would anticipate that the slowdown in Asia would impact the aviation market. However, this is not the case as Asia (and especially China) are in the world’s fastest-growing aviation market.
Aircraft makers such as Boeing Company, Airbus group SE and Embraer SA have stated that they are not concerned with the current Asian economic slowdown. In fact, the actual problem facing these companies is keeping up with the demand.
Boeing predicts the Asia – Pacific region will take delivery of over 14,000 planes over the next 20 years which will result in 38% of its projected global total. Airbus predicts that over the next 20 years this region will take delivery of nearly 13,000 new aircraft with a value of USD $2 trillion (yes – trillion with a T). The chief operating officer of Airbus recently stated that his biggest worry was not being able to build all of the planes that have already been ordered. This is the focus that investors need to have on the Asia-Pacific region and not the current economic slowdown.
In the US certain sectors are also currently in the slowdown especially the struggling agricultural equipment industry. Deere and Company is one of the leading companies in this industry and at the end of last year 75% of its revenues came from the agricultural and turf division. The farm machinery industry in 2015 suffered its worst sales year since 2009. Net farm income slumped 38%, the second conservative double-digital drop. If farm incomes decline this year, as the US Agriculture Department believes they will, it will be the third consecutive year of declines which has not happened since the 1970s.
So who would possibly be buying shares in the Deere company now?
Why no other than one of the best investors over the last several decades – Warren Buffett. His holding firm Berkshire Hathaway Inc. disclosed in February that they had raised their position in the company. Mr. Buffett often preaches being greedy when others are fearful, something he’s clearly doing with the purchase of his shares in Deere and Company. So what does he see that others don’t ? It’s all about understanding history and not headlines.
I hope these two examples of 2 sectors currently in downturns will help provide perspective for investors and have them focus on the long-term opportunities that exist for both the aircraft manufacturers and agricultural equipment manufacturers.
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