3 ASX sectors to benefit from local supply chains

About Latest Posts Daryl MatherDaryl Mather started investing in 1987 after the October share market crash and has remained invested …

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The figure of iron ore magnate Lang Hancock loomed large when I was a child in the Pilbara of Western Australia. In the mid-1970s, I had already seen my family and others build 6 towns and open a number of giant mine sites. I was convinced that anything was possible. During that time, Lang and Queensland Premier Joh Bjelke Petersen had a plan. They wanted a cross country rail line that would take iron ore to the east and coal to the west, with blast furnaces on each side. 

Lang's view was that we were never going to be able to defend the country. So we had to make ourselves invaluable to every one of the nuclear powers. I still believe he was right. Today, this idea of self sufficiency matters more than ever.

Local steel

One look at the size of our iron ore industry and it becomes very clear just how important steel is globally. As post-pandemic stimulus spending starts to take hold, it is going to be even more important. 

BlueScope Steel Limited (ASX: BSL) has been diligently working away in the background of the Australian economy. This was in a period when its only competitor became insolvent and was acquired by foreign investors. 

The company has managed to achieve a cashflow compound annual growth rate (CAGR) of 15.6% over the past 10 years. At the same time, it has averaged a 4 year average return on capital employed (ROCE) of 13%, which is impressive. It is currently selling at an earnings yield of 18.36% (at the time of writing).

In my opinion the company is clearly undervalued and stands to gain if organisations start to source more steel locally.

Local energy

Australians have often wondered why a country that leads the world in LNG production, has 30% of recoverable uranium deposits and the 3rd largest coal deposits on the planet has such high electricity prices. Naturally, the Prime Minister's Manufacturing Taskforce has quickly arrived at the truism that high energy and electricity costs are a barrier to growth in manufacturing.

Until a recent long term deal, this was a cornerstone of complaints from Tomago Aluminium, owned by CSR Limited (ASX: CSR). If the government acts on its promise to reduce layers of bureaucracy costs, the LNG producers stand to gain. 

This would include industry giant Woodside Petroleum Limited (ASX: WPL) and Origin Energy Ltd (ASX: ORG).

Local manufacturing

The true beneficiaries of local supply chains would be those companies already manufacturing at home. Of these I have always liked Reliance Worldwide Corporation Ltd (ASX: RWC). Reliance is involved in the design and manufacture of water flow, control and monitoring products and solutions. A lot of this company's manufacturing plants are still located in Australia and New Zealand. I am hopeful cost reduction and a "buy Australian first" approach will benefit it too. 

Daryl Mather has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Reliance Worldwide Limited. The Motley Fool Australia has recommended Reliance Worldwide Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Market News

A happy young couple lie on a wooden deck using a skateboard for a pillow.
Share Gainers

These were the best-performing ASX 200 shares in March

These shares made their shareholders smile in March thanks to some very big gains.

Read more »

Businessman using a digital tablet with a graphical chart, symbolising the stock market.
Opinions

2 ASX shares I have been buying in 2024!

I’m a believer in the long-term outlook of these stocks.

Read more »

Stock market chart in green with a rising arrow symbolising a rising share price.
Share Gainers

Here are the top 10 ASX 200 shares today

It was a massive day for the ASX 200, with a new all-time high recorded.

Read more »

A man sits thoughtfully on the couch with a laptop on his lap.
Technology Shares

This ASX tech stock rocketed 60% in March! Can it keep on delivering?

After soaring in March, the ASX tech stock is now up 169% since this time last year.

Read more »

Broker Notes

Brokers name 3 ASX shares to buy now

Here's why brokers are feeling bullish about these three shares this week.

Read more »

A young man clasps his hand to his head with his eyes closed and a pained expression on his face as he clasps a laptop computer in front of him, seemingly learning of bad news or a poor investment.
Share Fallers

Why Burgundy Diamond Mines, Clarity Pharmaceuticals, EML, and Zip are sinking today

These ASX shares are ending the week in the red. But why?

Read more »

A young women pumps her fists in excitement after seeing some good news on her laptop.
Share Gainers

Why Mesoblast, Newmont, Pilbara Minerals, and Platinum shares are jumping

These ASX shares are ending the week strongly. But why?

Read more »

a young boy dressed up in a business suit and tie has a cute grin and holds two fingers up.
Opinions

2 of my top ASX 200 shares to consider buying before April

I would happily exchange dollars for these two shares right now.

Read more »