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March 13,2013

Posted by nahetsblog on March 13, 2013

January Nonresidential Construction Materials Project Prices Turn Up

03/13/2013 by Bernard M. Markstein

Overview
Prices for inputs used in nonresidential construction turned up after three months of decline. Prices for cement, energy, energy-related products, and wood products were among the main drivers sending the index higher. Higher energy prices are now working their way through various product prices. A slowdown in federal construction projects due to budget cuts, which include the current sequestration, and a general slowdown in nonresidential construction should put some downward pressure on building materials prices. At the same time, increased residential construction activity is providing upward pressure on prices. In general, over the course of this year, expect prices to rise roughly in line with or slightly faster than overall inflation. Better than expected growth would result in building materials prices increasing at a faster rate.

Construction Materials Inflation
The Producer Price Index (PPI) for materials and components used in construction rose 0.5% on a seasonally adjusted (SA) basis in January after rising 0.2% in December according the Bureau of Labor Statistics (BLS) and was the sixth consecutive monthly increase. The index was up 2.7% on a not seasonally adjusted (NSA) year-over-year basis and was up 9.3% since January 2010. Meanwhile, prices for raw materials used in construction or to produce products used in construction rose 0.1% after increasing 0.2% in December. The index was up 2.8% from January 2012 and was up 6.9% from January 2010.

An index that measures inputs used in nonresidential construction (excluding capital equipment) advanced 0.6% (NSA) in January after declining 0.3% in December. January’s increase ended a string of three consecutive monthly declines. The index was up 0.8% from January 2012.

The BLS began reporting a new index that captures the change in the cost of constructing health care buildings. The index includes material costs, labor and equipment costs for installation, as well as including a margin for overhead and profit. Since this is a new index, only limited historical data are available at this point. Because of this, seasonally adjusted numbers are not available. The new index has been added to the table below.

US Construction-Related Price Indexes
Percent Change
Monthly
from Previous Month

NSA data unless
otherwise indicated
3-Month Moving Average
from Previous Month

NSA data unless
otherwise indicated
Year-over-year
NSA data
3 Years Ago
NSA data
Jan-13 Dec-12 Nov-12 Jan-13 Dec-12 Nov-12 Jan-13 Dec-12 Nov-12 Jan-13
Composite Indexes (Exclude capital equipment)
Construction Materials*
(Unprocessed materials)
0.1 0.2 0.0 0.1 0.2 0.0 2.8 2.7 2.5 6.9
Materials and Components for Construction*
(Processed goods)
0.5 0.2 0.1 0.3 0.2 0.2 2.7 2.7 2.4 9.3
Inputs to Construction
(Residential and Nonresidential)
(Includes inputs to maintenance and repair)
0.7 -0.1 -1.1 -0.2 -0.5 -0.2 1.3 1.3 1.0 11.4
Inputs to New Construction 0.7 -0.1 -1.0 -0.1 -0.5 -0.2 1.5 1.5 1.2 11.5
Inputs to Residential Construction 0.7 0.1 -0.7 0.0 -0.3 -0.2 2.1 2.0 1.7 11.4
Inputs to Nonresidential Construction 0.6 -0.3 -1.3 -0.3 -0.7 -0.2 0.8 0.8 0.6 NA
Inputs to Commercial Construction 0.6 -0.1 -0.7 -0.1 -0.4 -0.1 1.3 1.1 0.9 NA
Inputs to Industrial Construction 0.4 -0.2 -1.0 -0.3 -0.5 -0.2 0.6 0.8 0.7 NA
Inputs to Heavy Construction 0.6 -0.3 -1.6 -0.4 -0.8 -0.3 0.6 0.7 0.5 NA
Inputs to Maintenance and Repair 0.7 -0.3 -1.2 -0.3 -0.6 -0.2 0.4 0.0 -0.3 11.1
Inputs to Nonresidential Maintenance
and Repair
0.7 -0.3 -1.3 -0.3 -0.6 -0.2 0.2 -0.2 -0.7 10.8
Inputs to Res Maintenance and Repair 0.7 0.0 -1.1 -0.2 -0.6 -0.2 1.6 1.7 1.4 12.2
(Indexes include installation and overhead)
New Warehouse Building Construction 1.0 0.0 0.0 0.3 0.1 0.1 2.9 2.6 2.5 8.0
New School Building Construction 0.3 0.0 -0.3 0.0 0.0 0.0 0.9 1.1 1.2 6.9
New Office Construction 0.4 0.0 0.0 0.1 0.1 0.1 0.9 1.3 1.3 5.3
New Industrial Building Construction 0.5 0.0 0.1 0.2 0.2 0.1 1.3 1.4 1.2 5.5
New Health Care Building Construction 0.6 -0.1 -0.1 0.1 0.0 0.0 NA NA NA NA
Other Related Indexes
PPI Finished Goods* 0.2 -0.3 -0.4 -0.2 -0.3 0.2 1.4 1.3 1.5 9.4
PPI Finished Goods less food and energy* 0.2 0.1 0.2 0.2 0.1 0.1 1.8 2.0 2.2 6.6
CPI Urban Consumer* 0.0 0.0 -0.2 -0.1 0.0 0.2 1.6 1.7 1.8 6.3
CPI Urban Consumer less food and energy* 0.3 0.1 0.1 0.2 0.1 0.1 1.9 1.9 1.9 5.2
Production Index: Construction Supplies* -0.1 1.0 2.5 1.1 1.1 0.9 2.0 2.7 3.5 19.4
Retail Sales: Building & Equipment Supplies* 0.3 0.3 1.2 0.6 0.0 0.8 5.7 -0.2 5.4 25.9
*Seasonally-adjusted data for percent changes for monthly and 3-month moving average data
NSA = Not seasonally adjusted, NA = Not Available
Source: Producer Price Index (PPI) – Bureau of Labor Statistics; Production Index – Federal Reserve Board; Retail Sales – Census Bureau

Construction machinery prices were up 0.3% (SA) in January, the same as December’s increase. Construction machinery rental rates also rose 0.3% (NSA) following a jump of 1.1% in December. Despite a recent shift in the preference away from purchasing construction equipment to renting equipment, on a year-over-year NSA basis, rental rates have increased at a slower rate than the rate of increase for purchase prices — 1.5% versus 4.0%. Meanwhile, rental rates were up 4.5% since January 2010 while purchase prices were up 10.0%. Nonetheless, we still expect rental rate inflation to generally exceed equipment purchase price inflation over the course of this year.

To increase coverage of items commonly used in commercial construction projects we have added coverage of the PPI for “Air-conditioning, Refrigeration; and Forced Air Heating Equipment Manufacturing” to the table below. This index reflects changes in prices that are charged by producers, or to look at it another way, what most buyers (in this case, builders) pay.

US Construction-Related Price Indexes
Percent Change
Monthly
from Previous Month

NSA data unless
otherwise indicated
3-Month Moving Average
from Previous Month

NSA data unless
otherwise indicated
Year-over-year
NSA data
3 Years Ago
NSA data
Jan-13 Dec-12 Nov-12 Jan-13 Dec-12 Nov-12 Jan-13 Dec-12 Nov-12 Jan-13
Assembled Equipment
Hand and Edge tools 0.6 -0.3 0.0 0.1 0.0 0.6 2.7 2.8 3.2 3.8
Power Hand Tools 0.6 0.2 0.2 0.3 0.1 0.1 1.5 1.3 1.4 3.5
Appliances* -0.6 0.6 -0.9 -0.3 0.3 0.1 2.2 4.0 3.7 6.6
Furnaces -2.0 1.0 -0.2 -0.4 0.5 0.1 -0.6 2.1 0.5 4.3
AC; Refrigeration; and Forced Air Heating Equip. Mfg. -1.2 1.3 0.8 0.3 0.6 0.1 1.3 2.2 0.8 6.5
Construction Machinery* 0.3 0.3 0.6 0.4 0.5 0.3 4.0 3.8 4.1 10.0
Construction Machinery Rental (incl. oilfield equip.) 0.3 1.1 1.0 0.8 0.4 0.4 1.5 0.1 0.6 4.5
Construction equipment rental and leasing 0.0 0.7 1.4 0.7 0.7 0.9 0.6 -0.4 1.8 4.4
Oilfield and well drilling equipment rental
and leasing
1.7 3.5 0.0 1.7 0.0 -1.1 5.7 4.0 -0.4 8.4
Trucks over 14,000 Ibs. GVW 0.6 0.3 0.5 0.5 0.1 0.0 2.1 2.2 1.8 8.0
Metal Doors, Sash and Trim 0.1 -0.1 0.0 0.0 0.0 0.0 1.8 1.8 2.0 9.7
*Seasonally-adjusted data for percent changes for monthly and 3-month moving average data
NSA = Not seasonally adjusted, NA = Not Available
Source: Producer Price Index (PPI) – Bureau of Labor Statistics

Cement and Concrete
Cement prices shot up 1.8% (NSA) in January, their largest monthly increase in almost four years, after no change in December. Prices were up 3.6% from January 2012 but were down 2.2% from January 2010.

Prestressed concrete products prices rose a more modest 0.6% after edging up 0.1% in December. On a year-over-year basis, prices were up 0.6%, and they were up 2.5% from January 2010. Precast concrete products prices rose 0.3% in January after surging 1.6% in December. Prices were up 2.5% from January 2012 and were up 7.2% from January 2010.

US Construction-Related Price Indexes
Percent Change
Monthly
from Previous Month

NSA data unless
otherwise indicated
3-Month Moving Average
from Previous Month

NSA data unless
otherwise indicated
Year-over-year
NSA data
3 Years Ago
NSA data
Jan-13 Dec-12 Nov-12 Jan-13 Dec-12 Nov-12 Jan-13 Dec-12 Nov-12 Jan-13
Construction Commodities
Dimension Stone 1.9 0.0 0.1 0.7 0.0 0.1 2.8 1.3 1.6 3.2
Cement 1.8 0.0 0.2 0.7 0.0 0.0 3.6 3.4 3.6 -2.2
Construction Sand, Gravel & Crushed Stone* 0.2 0.1 0.0 0.1 0.2 0.0 2.9 2.3 2.1 6.2
Softwood Plywood 4.3 1.2 -3.6 0.6 -1.2 -0.4 20.9 19.6 21.0 36.2
Hardwood Lumber 1.9 0.2 0.2 0.8 0.5 0.4 4.0 1.6 1.7 8.2
Softwood Lumber* 6.7 2.1 5.1 4.6 1.7 1.2 24.8 17.3 13.7 30.5
Other Commodities
Industrial Natural Gas* 0.0 1.4 0.9 0.7 1.3 0.9 -1.6 -5.0 -8.2 -18.1
Plastic Resins & Materials 1.6 -0.7 -0.6 0.1 0.5 0.3 3.0 3.5 2.3 22.5
Insulation Materials 2.0 0.1 -0.5 0.5 -0.4 -0.7 5.4 5.1 5.1 17.9
Iron & Steel Scrap 0.3 0.9 11.9 4.1 0.0 -0.8 -19.9 -15.5 -11.0 9.6
Iron Ore -3.6 0.0 0.1 -1.2 1.7 0.3 -8.9 -3.8 1.2 23.7
Copper Ores 1.9 -2.6 -4.4 -1.8 -2.3 0.9 -2.0 1.6 1.3 11.0
Copper Base Scrap* -0.4 2.0 -0.6 0.3 1.1 1.9 1.2 0.9 -0.7 14.5
*Seasonally-adjusted data for percent changes for monthly and 3-month moving average data
NSA = Not seasonally adjusted, NA = Not Available
Source: Producer Price Index (PPI) – Bureau of Labor Statistics

Energy and Related Products
Diesel fuel prices continued their recent upward movement, increasing 0.9% (SA) in January after soaring 2.6% in December. Despite the recent surge, diesel prices were down 1.0% (NSA) from January 2012 but were up 39.0% from January 2010.

Industrial natural gas prices were flat in January, a bit of a reprieve following five months of increases, including December’s 1.4% (SA) jump. Still, industrial natural gas prices were down 1.6% from January 2012 and were down 18.1% from January 2010. Natural gas remains a considerable bargain relative to oil.

Plastic resins and materials prices also shot up, increasing 1.6% (NSA) in January after decreasing 0.7% in December. Prices were 3.0% higher than in January 2012 and were 22.5% higher than in January 2010.

Surprisingly, asphalt prices declined dramatically for the third consecutive month and the seventh month out of the last eight months, plummeting 6.0% (NSA) in January after falling 2.0% in December. Prices were 10.6% lower than in January 2012 but were 16.2% higher than in January 2010. However, asphalt roofing prices rose 0.9% in January following a 1.1% drop in December. Prices were up 0.7% from January 2012 and were up 7.5% from January 2010.

Plastics pipe prices moved 1.9% (NSA) higher in January after no change in December. They were up 10.2% from January 2012 and were up 27.3% from January 2010. Plastics plumbing fixtures prices however, tumbled 2.7% after advancing 0.3% in December. That left prices down 1.2% from January 2012, but up 3.8% from January 2010.

US Construction-Related Price Indexes
Percent Change
Monthly
from Previous Month

NSA data unless
otherwise indicated
3-Month Moving Average
from Previous Month

NSA data unless
otherwise indicated
Year-over-year
NSA data
3 Years Ago
NSA data
Jan-13 Dec-12 Nov-12 Jan-13 Dec-12 Nov-12 Jan-13 Dec-12 Nov-12 Jan-13
Manufactured Materials
Gypsum Products 11.8 -0.3 0.4 4.0 -0.2 -0.5 20.4 14.0 14.9 30.1
Petroleum refineries 1.0 -2.4 -8.3 -3.4 -4.5 -1.9 -4.7 -3.2 -3.8 29.5
Diesel Fuel* 0.9 2.6 -9.1 -2.1 -1.5 -0.3 -1.0 1.8 -4.0 39.0
Asphalt -6.0 -2.0 -7.5 -5.2 -2.2 -2.4 -10.6 -2.5 3.2 16.2
Asphalt paving mixture & block mfg. 0.5 -0.2 0.0 0.1 -0.1 -0.3 3.2 4.0 4.5 16.5
Asphalt shingle and coating materials mfg. 0.4 -0.9 -0.5 -0.3 -0.8 0.1 0.3 -0.2 1.6 10.1
Asphalt Roofing 0.9 -1.1 -0.5 -0.2 -1.1 0.0 0.7 -0.6 1.4 7.5
Paint 1.1 -0.4 0.0 0.2 -0.1 0.0 0.5 10.1 10.5 15.7
Plastic Construction Products 0.2 0.2 0.4 0.3 0.3 0.3 4.0 4.7 4.5 11.5
Plastics Pipe 1.9 0.0 0.6 0.8 1.0 1.3 10.2 12.4 11.8 27.3
Plumbing Fixtures -2.7 0.3 0.1 -0.8 0.1 0.1 -1.2 2.1 1.7 3.8
Vitreous Plumbing Fixtures 0.6 0.6 -1.1 0.0 0.3 0.1 0.9 1.7 1.1 5.9
Ceramic Tile -0.9 0.4 -0.5 -0.3 0.6 0.0 -0.5 0.7 0.4 -1.3
Flat Glass 0.4 -0.7 0.3 0.0 -0.1 0.3 2.2 1.0 2.3 2.0
Steel Mill Products -0.1 0.9 -1.3 -0.2 -0.8 -0.6 -8.3 -7.9 -9.1 12.9
Steel Pipe and Tube* -2.5 0.7 -0.4 -0.8 -0.2 -0.3 -8.8 -6.1 -6.7 20.1
Hot rolled bars, plates & structural shapes 0.5 1.6 -2.0 0.0 -0.7 -0.6 -9.8 -9.6 -12.0 15.0
Extruded Aluminum rod, bar and other shapes 3.4 -0.5 -0.7 0.7 0.5 0.4 0.7 -3.4 -5.1 5.6
Architectural Metalwork 0.3 -0.1 0.2 0.1 0.0 -0.1 0.9 0.5 0.6 7.3
Metal Plumbing Fixtures* 0.0 0.2 0.0 0.0 0.2 0.3 1.3 1.7 1.6 5.6
Builders’ Hardware -0.5 -0.6 0.4 -0.2 -0.1 0.2 -0.2 0.5 1.2 7.7
Sheet Metal Products -1.5 0.0 0.0 -0.5 0.0 0.0 -2.1 -0.5 -1.4 5.6
Copper and Copper Products 1.2 1.3 -3.6 -0.4 -0.3 0.7 0.6 0.2 -1.7 5.7
Copper and Brass Mill Shapes 0.6 1.5 -3.3 -0.4 0.2 0.9 2.9 1.0 -0.9 -2.1
Nonferrous Pipe and Tube 2.6 -0.8 -1.5 0.1 0.2 2.4 3.5 -1.7 -1.1 2.0
Building Brick -1.3 0.1 -0.2 -0.5 0.0 -0.1 -1.8 -2.9 -3.4 -7.8
Ready Mix Concrete* 0.3 0.2 0.0 0.2 0.2 0.1 2.3 2.3 2.4 2.3
Concrete Block & Brick -0.2 0.6 -0.3 0.0 0.2 0.0 0.8 1.5 0.8 1.5
Prestressed Concrete 0.6 0.1 -0.1 0.2 0.0 -0.3 0.6 -0.2 -0.2 2.5
Precast Concrete Products 0.3 1.6 -0.2 0.5 0.4 -0.2 2.5 2.6 1.3 7.2
Concrete Pipe 0.7 0.6 -0.7 0.2 0.7 0.5 5.0 4.3 3.2 6.4
Engineered Wood Products 2.1 2.3 1.2 1.9 1.3 1.4 15.1 12.5 9.7 20.5
Wood Kitchen Cabinet and Countertop Mfg. 1.0 0.3 -0.1 0.4 0.2 0.1 2.9 2.0 1.7 5.9
Millwork (window, door, cabinet)* 1.1 0.2 0.0 0.4 0.1 0.1 2.5 1.5 1.2 7.1
Wood Window and Door Mfg. 1.4 0.3 -0.1 0.5 0.1 -0.1 1.8 0.5 0.3 9.8
Metal Window and Door Mfg. 0.1 -0.1 0.0 0.0 0.0 0.0 1.9 1.9 2.1 9.2
Laminated Plastics 0.3 -0.1 -0.1 0.0 -0.1 0.0 0.9 0.6 0.7 6.3
Nonresidential Electric Lighting Fixture Mfg. -0.1 0.4 -0.2 0.1 0.1 0.0 0.4 0.4 0.1 6.2
*Seasonally-adjusted data for percent changes for monthly and 3-month moving average data
NSA = Not seasonally adjusted, NA = Not Available
Source: Producer Price Index (PPI) – Bureau of Labor Statistics

Copper and Copper Products
Copper ores prices jumped 1.9% (NSA) in January following two months of sharp declines, including a 2.6% plunge in December. Prices were 2.0% lower than in January 2012, but were 11.0% higher than in January 2010.

Copper base scrap prices fell 0.4% (SA) in January after surging 2.0% in December. Prices were 1.2% higher than in January 2012 and were 14.5% higher than in January 2010.

Prices for copper and copper products rose 1.2% (NSA) in January following a 1.3% increase in December. Prices were up 0.6% from January 2012 and were up 5.7% from January 2010.

Copper and brass mill shapes prices advanced 0.6% in January after increasing 1.5% in December. Prices were up 2.9% from January 2012, but were down 2.1% from January 2010.

Other Metals
Steel mill products prices slipped 0.1% (NSA) in January after increasing 0.9% in December. Prices were down 8.3% from January 2012, but were up 12.9% from January 2010. Hot rolled bars, plates, and structural shapes prices rose 0.5% in January after jumping 1.6% in December. Nonetheless, prices were 9.8% lower than in January 2012, but were 15.0% higher than in January 2010.

Extruded aluminum rod, bar, and other shapes prices surged 3.4% (NSA) in January after declining 0.5% in December. Prices were up 0.7% from January 2012 and were up 5.6% from January 2010.

Series Changes
The index for “Wood Kitchen Cabinets” has been discontinued by the BLS. We have replaced it with the index for “Wood Kitchen Cabinet and Countertop Manufacturing.” We also added three more price indexes that are likely to be of interest to commercial builders, “Wood Window and Door Manufacturing,” “Metal Window and Door Manufacturing,” and “Nonresidential Electric Lighting Fixture Manufacturing.” The indexes appear in the table above.

Softwood Lumber and Gypsum
Demand for softwood lumber and gypsum products is largely determined by single-family housing construction activity. The improving single-family housing market has been pushing demand for these materials higher.

The PPI for softwood lumber rocketed up 6.7% (SA) in January after increasing a strong 2.1% in December and a robust 5.1% in November. Prices were 24.8% higher than in January 2012 and were 30.5% higher than in January 2010.

Canadian softwood lumber exports to the U.S. are regulated by the Softwood Lumber Agreement (SLA). Each month the level of exports permitted and any relevant export fees are determined by where the average price of softwood lumber over a specified four week period prior to that month falls within a four tier regime. The categories, from most restrictive to least restrictive and the related prices determining which category is in force for the month, are as follows.

  • The first category is for an average price of $315 per thousand board feet or lower
  • The second category is for an average price of $316 to $335
  • The third category is for an average price of $336 to $355
  • The fourth category is for on an average price of $356 or higher and eliminates all restrictions and fees on Canadian softwood lumber exports to the United States

There has been significant variation in the price of softwood lumber over the past several months. Increased single-family construction activity has been sufficient to drive prices for softwood lumber high enough to result in tier 4 — no restrictions on Canadian exports — for the first three months of the year. Reed Construction Data estimates that average prices that determine the relevant category for April have been high enough to ensure that no export restrictions will be in force for that month. The table below summarizes recent average prices and the resulting tier (category).

Average Prices to Determine
SLA Canadian Softwood Export Restrictions
2012 2013
November December January February March April
Average Price $326 $334 $357 $385 $395 $416*
Tier 2 2 4 4 4 4*
Source: Foreign Affairs and International Trade Canada

*Reed Construction Data estimate

In 2011, six gypsum producers sent letters indicating they would raise prices 35% in January 2012. But the December 2012 PPI was up less than half that amount (14.0%) from December 2011.

Although only partially successful with their 2012 price increase, last year several gypsum producers announced price increases of 25% to 30% effective at the beginning of this year. The early indications are that this time gypsum producers are recording some success. January gypsum prices jumped 11.8% and were 20.4% higher than in January 2012. Since January 2012 they were up 30.1%.

Outlook for Construction Materials Prices
The U.S. economy flattened in the fourth quarter of last year due to a few special circumstances, such as a sharp reduction in defense spending, that are not likely to be repeated. There are already indications that the first quarter of this year will report improved growth.

Meanwhile, the politicians are wrangling over how to resolve various budget issues even as sequestration began this month. It is estimated that if sequestration is left in place, it will lower real (inflation-adjusted) gross domestic product (GDP) growth by 0.5%, not healthy, but not a disaster either. Bigger threats are not enacting a federal government budget before the end of this month and expiration of the temporary federal debt ceiling in mid-May. Although nothing is certain in this political climate, it is likely that something will be done about both, if only extending the current deadlines. Recent reports that discussions are underway regarding these issues raise hope that a longer-term, more reasonable solution will be reached.

Europe has been muddling through its problems, although many European countries have fallen into recession. Slower growth in Europe is a drag on U.S. exports of construction machinery and products to Europe.

Despite these and other economic challenges, the Reed Construction Data forecast is that recession is avoided, the economy continues to grow at a moderate pace, and nonresidential construction activity will advance modestly this year and pick up speed next year. There will be moderate upward pressure on construction materials prices as some of the impediments to growth are removed or reduced. The outlook is for 2013 building materials prices inflation to proceed at roughly the same pace or a little faster than overall inflation.

If the U.S. economy outpaces our forecast of real (inflation-adjusted) gross domestic product (GDP) growth of 2.5% for the year, there will be greater construction activity and faster materials price inflation. Faster growth in the rest of the world would also mean higher construction materials prices. Significantly higher energy prices for a sustained period would contribute to a faster rate of increase in building materials prices, but would also be a drag on economic growth, eventually hurting construction activity and limiting building materials price increases.

My Top 2 Stocks: Caterpillar and Oracle

By Nichole Seghetti

This month, we Fools are discussing our top two stock holdings. Today I’ll address the reasons I bought my stocks, how they came to become my largest holdings, why I continue to hold them, and whether I still like the stocks for investors today.

Caterpillar (NYSE: CAT )
Roughly one-third of the world’s population lived in urban areas in 1950, and more than half of us currently inhabit cities. By 2030, cities and towns of the developing world will make up 80% of urban humanity. Urbanization is fueling demand for the building blocks of modern society. As a result, we’ll need more natural resources, like metals and materials, to build everything from power lines to buildings. And, in order to build out infrastructure, earthmoving and construction will be required.

I bought Caterpillar and metals and mining conglomerate BHP Billiton (NYSE: BBL ) to potentially profit from this trend. I bought Caterpillar, in particular, for both its product and geographic diversification. As the world’s largest manufacturer of earthmoving, construction, and mining equipment, the company derives nearly 60% of sales internationally.

Emerging markets account for a decent slice of Caterpillar’s sales today, and they’ll likely become a much larger part of revenues over the long term. Caterpillar will benefit from a continued rebound in the U.S. housing market, and its purchase of mining equipment maker Bucyrus sets it up nicely for growth long term.

I bought both Caterpillar and BHP Billiton in the midst of the financial crisis, as the construction and building industry was coming to a screeching halt. From the time I bought Caterpillar in 2009, it’s grown more than 33% on average annually and has become one of my largest holdings. While I expect Caterpillar to experience short-term headwinds, especially as growth in developing markets slows and demand for commodities cools off, I’m in it for the long haul. And I still like the stock for investors looking to get in today.

Oracle (NASDAQ: ORCL )
The first tech stock I ever bought was Applied Materials (NASDAQ: AMAT ) . I had just graduated from college, was living in Northern California, and had a close friend who worked at the Silicon Valley semiconductor equipment maker. I had a bit of success with Applied stock and thought I’d dabble into more tech stocks.

I bought Oracle in 1998. The world’s second largest software company and the leading provider of software for information management, Oracle’s competitive advantages are its recurring revenue business model, high customer retention, and synergies from acquisitions.

Oracle’s solid long-term track record is largely thanks to founder and CEO Larry Ellison. He adheres to a philosophy of being either No. 1 or No. 2 in a market. If the company can’t achieve that, it’ll either exit the market altogether or leverage its strong balance sheet to acquire a company that will help it get to a market-leading position.

As a result, Oracle has completed billions of dollars in acquisitions during the past few years. The company continually receives criticism for its spending spree. But I think most of the acquisitions have dovetailed nicely into the rest of the company’s products, augmented profits, and increased shareholder value.

For example, last month, Oracle announced it would acquire communications tech firm Acme Packet (NASDAQ: APKT ) , a leader in next-generation networks. With this acquisition, Oracle will complete a missing link of its overall solutions. Because the company offers an entire solution suite, it’s likely the newly acquired customers will add even more of Oracle’s software and services.

I rode Oracle through the tech bubble, suffered through the tech bust, and have held on to it ever since. While the stock has brought on a few headaches over the years, I believed in its long-term prospects. And I like the direction Oracle seems to be heading in. From the time I bought the stock nearly 15 years ago, it’s returned 17% on average annually. It pays to buy and hold, even when holding is tough to do.

Foolish bottom line
In addition to being leaders in their respective fields, these industry titans enjoy enormous scale and true staying power. Both Caterpillar and Oracle remain companies that I like for investors today and that I intend to hold for many years.

Caterpillar and Oracle are my top two stock holdings, but our co-founder Tom Gardner recently revealed his top two stocks as well. For the names of that surprising pair of companies, just click here.

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