3 Stocks that Benefit from Government Regulations

Government regulations are a nuisance, and workplace regulations are often little more than legally-enforced common sense.   All those rules on workplace safety… how to pick things up, how to store them on shelves, how to keep walkways and exits uncluttered, how to use tools, how to handle chemicals.

While they can help prevent workplace injury and pain, they sure do give us a pain somewhere else – and you know where.

But the thing about safety regulations –or any regulations, for that matter– is that they have the ability to pump up business in related industries.

Take this snippet from a recent piece of research by Transparency Market Research:

“A rise in the number of worker accidents coupled with the implication of strict regulations in regions such as Europe and North America is the major factor driving the Industrial Footwear market at present. The market is likely to see high growth as the impact of these regulations is expected to increase in the coming years.”

Well how about that? We can actually profit from government regulation! Even from all those annoying workplace safety regs.

Let’s have a look at some companies that can protect the health and safety of our investment portfolios while they promote health and safety in our workplaces.

Products To Consider

One product that benefits across almost all workplace environments is protective footwear – from construction to manufacturing to warehousing to mining to drilling, just to name a few. That’s what we want in a portfolio holding – a supplier with as broad a market as we can find.

Note how widespread the demand is for protective footwear in this U.S. Department of Labor description of footwear requirements:

“The employer shall ensure that each affected employee uses protective footwear when working in areas where there is a danger of foot injuries due to falling or rolling objects, or objects piercing the sole, and where such employee’s feet are exposed to electrical hazards.” (www.osha.gov/pls/oshaweb)

“Each affected employee” is an awful lot of consumers.

According to the Bureau of Labor and Statistics, in January of 2014 there were 792,000 workers employed in farming, fishing and forestry occupations, 6.86 million in construction and extraction (including mining and drilling), 4.82 million in installation, maintenance and repair, 8.25 million in production, and 8.46 million in transportation and material moving.

That gives protective footwear alone a potential market of as many as 29.18 million consumers in the United States alone. At an average price of say $100 per pair of boots, we’re looking at a $2.9 billion industry – which could easily be doubled to $5.8 billion given that most workers will have two pairs or more, depending upon the nature of their job.

What’s more, there’s no way to sidestep it. OSHA (The Occupational Safety and Health Administration) “has been naming and shaming employers for safety violations”, Forbes reports. “OSHA issues press releases that contain bombastic statements and mentions of citations… even for smaller or routine citations.”

OSHA means business, and that means business for safety footwear manufacturers.

Walk This Way

Investors looking to increase the safety of their portfolio investments might consider trying on a pair of these footwear manufacturers who are leaving a footprint in their market. Try these on for size:

• V.F. Corporation (NYSE: VFC) – This $25.79 billion large-cap founded way back in 1899 and headquartered in Greensboro, North Carolina, is an all-purpose footwear and apparel manufacturer in the Americas and Europe. In addition to its occupational, sports and adventure footwear, it also produces hiking gear and clothing, even travel luggage. Its better known name brands include The North Face, Vans, Timberland, Kipling, Napapijri, Jansport, Reef, Smartwool, Eastpak, Lucy, Eagle Creek, Wrangler, Lee, Riders, Rustler and Timber Creek.

After correcting quite a bit during the last recession – its stock plunged from $24 in 2007 to $10 in 2008 for a drop of 58 percent – the stock has since been stomping along to some $58 currently for a gain of 480 percent in five years, 60 percent in just the last 12 months.

Its return on assets and return on equity are an impressive 10.39 percent and 21.60 percent respectively, while its revenues per share registered $26.03 – better than Wells Fargo, General Electric and Disney on all three metrics.

With an average buy recommendation at 2.1 (on a scale of 1-buy to 5-sell), the 21 brokers surveyed by Yahoo! Finance expect a low target of $55, a mean target of $64.43 and a high target of $71 representing a potential 22.4 percent increase over the next year.

• Wolverine World Wide (NYSE: WWW) – This $2.63 billion mid-cap founded even earlier in 1883 and headquartered Rockford, Michigan, is also well diversified across the athletic, outdoor and workplace footwear and clothing markets under name brands including Bates, Cat, Chaco, Cushe, Harley-Davidson, Hush Puppies, HyTest, Keds, Merrell, Patagonia, Saucony, Sebago, Soft Style, Sperry Top-Sider, Stride Rite, and Wolverine in the Americas and Europe.

Its stock follows the typical pattern already mentioned – falling from $15 in 2008 to $7 in 2009 for a drop of 53 percent, then rising to $34 by the start of 2014 for a rise of 385 percent in five years; though it has fallen to $26 currently.

While its returns on assets and equity of 3.73 percent and 8.97 percent respectively are average, its revenues per share are an impressive $27.76 – better than V.F. Corp on that measure.

The 10 analysts surveyed by Yahoo! Finance rate Wolverine a hold at 2.9, expecting a low target of $23, a mean target of $27.40 and a high target up to an all-time high of $35 for a potential upside of 34 percent from here.

• Weyco Group (NADAQ: WEYS) – This Milwaukee, Wisconsin based $277 million small-cap, also an old-timer from 1896, designs and markets casual, sports, outdoor and industrial footwear under the brand names Florsheim, Nunn Bush, Stacy Adams, BOGS, Rafters, and Umi across the U.S. and Canada.

While its stock has not enjoyed the stellar rises of its competitors’, it has grown from under $10 in 2002 to over $25.50 today for a rise of some 170 percent in 12 years, bettering the S&P 500’s rise of 70 percent over that period. Yet its performance has been relatively flat over the past 5 years, rising only 20 percent versus the S&P’s 160 percent. Even so, its above average 2.91 percent dividend yield beats the broader market’s.

Like its competitors, Weyco generates strong returns on assets and equity of 6.28 percent and 9.24 percent respectively, with revenues per share of $27.86 – the best of the three highlighted here, and still better than Wells Fargo, Wal-Mart and GE.

The one analyst surveyed by Yahoo! Finance expects the stock to reach $32 in the coming 12 months, representing a potential gain of 25 percent from currently levels.

Walk a Mile in Their Shoes

Though improved safety regulation comes slowly for many industrialized nations, it is a global trend. We can expect safety equipment and clothing manufacturers to flourish for decades to come.

It must also be remembered that anything related to worker safety is directly exposed to boom-bust cycles in the construction, manufacturing, mining and energy industries.

When the global recovery enters full bloom, we should see these stocks really pounding the pavement.

As such, while these companies are in the business of protecting workers from slips and falls, their stocks could also protect our portfolios from slipping and tumbling in their constant exposure to the risks and hazards of the marketplace.

Joseph Cafariello