What Could Lift Manitowoc's Stock over the Long Haul

With a housing slump battering the U.S. since last year, it might seem like a strange time to invest in Manitowoc (MTW), a Manitowoc, Wis., company focused mainly on manufacturing construction equipment.
 
But Jack Dzierwa, co-manager of the Global MegaTrends Fund (MEGAX), said that's a shortsighted attitude when talking about Manitowoc, a company whose core business is making cranes. Manitowoc, he said, is poised to benefit from longer-term infrastructure projects.

 “A lot of people are worried about a global slowdown,” said Dzierwa, which might be why the stock has dropped 20% since December and was at $41.71 as of February 25. But “there are projections that infrastructure needs by 2025 will be between $30 trillion and $40 trillion.”

Manitowoc, which makes up 2.7% of MegaTrend’s holdings, has grown considerably in the past five years, with crane sales rising from $681 million in 2002 to $3.25 billion in 2007.

The other two sectors of the company are shipping repair and food-service equipment.

While Dzierwa doesn’t see those two areas helping the company that much, he doesn’t see them hurting either. In the past few years, ship-repairing services have grown from $219.5 million in sales in 2002 to $321 million in sales in 2007, but that’s nothing compared with the scale of the crane operation, said Dzierwa.  As for the vending machine business, “there has been a decline in sales…over the last five years,” Dzierwa said, but thinks the crane business, which makes up 81% of Manitowoc’s revenue, will offset any minor slowdown at other units.

“Crane revenues will drive up the group,” he said, but added that this "volatility will pass, and infrastructure in the U.S. and abroad will continue to boom.”

He pointed out that infrastructure spending is driven by both the public and private sectors. “For now, I haven’t seen businesses [cutting back on] capital spending,” said Dzierwa.

And he sees significant public expenditures coming from the developing world. “India’s government has committed to spend $494 billion [on infrastructure] between now and 2012,” said Dzierwa, noting that 50% of Manitowoc’s revenue comes from outside the U.S. The money manager also pointed to China, believing that with the growth of its cities, there are abundant opportunities. “People are calling [the shift from rural to urban China] one of the greatest migrations in human history,” he said.

Within the U.S., there is not only a cyclical need for infrastructure, but after the bridge collapse in Minnesota on August 1, 2007, there is an even more acute awareness by the public.

“This is a global issue,” said Dwierza, and now it’s a “hot political topic” that gives it more momentum. Roads, sewer systems, bridges--“most infrastructure investments don’t last forever,” he said. Dzierwa also maintained that the housing slowdown is not a significant factor for Manitowoc, which gets only 1% of its revenue from residential construction and 6% from commercial construction.

For now, Dzierwa believes a lot of the problem is that people have trouble visualizing what is going to happen with these massive projects because “infrastructure [construction] hasn’t been seen on such a scale in the past.” Dzierwa predicted that after seeing first and second quarter results from Manitowoc, “we will see a strong comeback to this story.”