In fact, the World Energy Outlook from the International Energy Agency points to China and India as the areas of highest growth in energy infrastructure for decades to come - and ABB is perfectly positioned to take advantage of this.
And that’s what makes ABB such a great stock, especially right now.
Unlike consumer-oriented markets - where a large percentage of the spending is discretionary, and gets cut back when times get tough - infrastructure spending is a virtual necessity, meaning governments and companies cannot cut back on their outlays for roadways, water systems and power-generation-and-distribution systems.
And we have a huge trend towards urbanization in China and India that will continue strongly, despite the current market turmoil. To give you an idea, China and India will account for 45% of the $22 trillion investment in infrastructure needed to meet demand growth over the next 20 years. And both countries are awash in money that can be deployed into infrastructure projects.
ABB is a company of superlatives. They have been in business for 120 years and now lead the world markets in both power-transmission and power-management systems, as well as in industrial-automation products and systems. In power, about a quarter of the company’s sales emanate from high-growth Asia and about a half come from Europe. In the automation field - where growth is steady, though unspectacular - ABB has installed more than $100 billion of these systems through the years, which at least provides the company with an ongoing source of revenue for replacement parts.
ABB spends as much time focusing on internal improvements as it does on market opportunities. It constantly re-examines its "core competencies" to make sure it remains at the head of the pack, and it also strives to consistently improve its internal operational efficiency.
These initiatives are leading to an ongoing expansion in ABB’s profit margins. That, in turn, should boost ABB’s competitive position vis-à-vis the very few other global firms that have the ability to tackle the massively complex, highly technical power projects that are being built in the emerging markets today.
We like ABB’s clear commitment to its shareholders. Back in April, the company said that sales growth would average 8%-11% a year for the period from 2007-2011. Profits will advance at an even-brisker 11%-16% during the same period. The company also announced plans to buy back $2 billion worth of its own shares - almost always a positive sign for stockholders.
At ABB’s annual shareholders’ meeting in May, interim Chief Executive Officer Michel Demare said the company is "relatively little exposed" to the global financial crisis and noted that powerful global trends are in place to support the company’s business for years to come. The firm’s first-quarter revenue rose 17% on a year-over-year basis, and net income reached $1 billion, a jump of 87%.
