Buy Those Companies That Japan Needs In Its Rebuilding

The tragedy in Japan is still unfolding, and the extent of the devastation is uncertain, but there will come a time when the country will rebuild.

When that happens, the reconstruction effort will be massive and lengthy, and will involve both Japanese and international companies.

With that in mind, Standard & Poor's highlighted some of the companies and industries that could see greater demand for their products and services as Japan recovers.

S&P's list of stocks and exchange-traded funds for investors to consider is a grim reminder of the gargantuan scale of work that lies ahead, yet underscores the fact that Japan will spend what it must to speed the recovery of its economy and its society.

Japan's economy is the third largest in the world, but its growth had been anemic even before the natural disaster struck. As a result of the quake and its aftermath, Japan's economy will grow 3% in 2012, according to economic forecaster IHS Global Insight.

The S&P selections aren't so surprising -- concentrated on building materials, engineering and construction firms that will be called to repair and rebuild Japan's housing and infrastructure, and oil refiners that could meet the country's energy needs now that its nuclear power industry is crippled.

"The major rebuilding effort that will need to take place should eventually benefit companies that make building materials and construction equipment," Standard & Poor's Equity Research Services analyst Michael Jaffe said in the strategy report, released Thursday.

ETFs with heavy exposure to construction firms, S&P noted, include First Trust ISE Global Engineering and Construction Index Fund (FLM) and PowerShares Dynamic Building & Construction Portfolio (PKB).

Construction giant Caterpillar Inc. (CAT) in particular has a sizeable presence in Asia, Jaffe pointed out. In trading Thursday, shares of Caterpillar added 2.7% to close at $103.09.

ETFs with substantial positions in Caterpillar include Industrial Select Sector SPDR Fund (XLI) , iShares Dow Jones US Industrial Sector Index Fund (IYJ) PowerShares Dynamic Industrials Sector Portfolio (PRN) and Vanguard Industrials Index Fund (VIS).

The S&P report also noted that Japan is the world's third-biggest user of oil and the second largest importer of crude.

Energy stocks on S&P's list include Exxon Mobil Corp. (XOM), Tesoro Corp (TSO), Valero Energy (VLO). Analysts pointed out that Exxon Mobil is a major refiner in Japan, while Tesoro and Valero have significant operations on the U.S. west coast and could export more refined oil to Japan as needed.

-Jonathan Burton; 415-439-6400; [e-mail]