Australian manufacturers have gotten a little reprieve by way of a weaker Aussie dollar if they export individual orders overseas, and generally a lower interest rate should help businesses with borrowing costs, but overall they are still showing weakness according to the Performance of Manufacturing Index.
The biggest growth industries
The Australian Industry Group's January index release indicates that of the various manufacturing industries, food and beverage, and building materials producers are expanding the most.
There is still concern amongst survey participants about business conditions, such as lower demand and decreases in new orders and exports. Looking from a total producer-seller-consumer perspective, the level of demand from consumers has to be much higher for it to flow strongly back through the seller to the manufacturer.
Investing strategy
As investors, we want to find the points of strength and concentrate on them. Some food and beverage companies like Coca-Cola Amatil Ltd (ASX: CCL) and Tassal Group Limited (ASX: TGR), the salmon producer, are well known, and would benefit from this trend.
Also, anyone who has been following the "cheese wars" for the takeover of Warnambool Cheese and Butter Factory Co. (ASX: WCB) watched its share price more than double from the first takeover offer in September. Bega Cheese Ltd (ASX: BGA) may not be the final winner in the three-way acquisition battle, but its shareholders have received a great return as the share price rose 67.8% to $4.90 since August.
The industry is consolidating, so investors should know all the players. Further acquisitions are possible, so not only could you get a company with good growth, you may also receive a premium if an offer eventuates.
Asia's high demand
Dairy products, beef, grains and other high-quality products have an extra kicker because they are in high demand in Asia, especially China.
Although they have been pulling back in share price recently, companies like Australian Agricultural Company Ltd (ASX: AAC) with its live beef export business to countries like Indonesia, and grain producer Graincorp Ltd (ASX: GNC) could benefit from this change in demand.
International investors and companies could begin buying into these and similar companies if they want to be involved more directly with the industries. Such as in the failed takeover of Graincorp by Archer Daniels Midland Company (NYSE: ADM).
Foolish takeaway
Investing is about seeing opportunities and capitalising on them. It looks like food and beverage companies may have the best advantages right now.
