Our theme of Stocks That Benefit From Rising Business Spending, which includes heavy equipment makers, electrical systems suppliers, automation solutions providers, and semiconductor fabrication equipment players that stand to benefit from higher capital spending, is up by 29% year-to-date, significantly outperforming the S&P 500 which is up by just 13% over the same period.
There are multiple trends that point toward a big upcycle in capital spending across the economy. With demand for nearly everything surging following the Covid-19 lockdowns, companies are seeing strong pricing trends and profit growth. This could incentivize them to double down on capacity expansions and upgrades. Moreover, companies have under-invested in their capacity for decades as they moved to asset-light models that rely on outsourcing production to lower-cost markets. However, events such as Covid-19, the trade war with China, and the recent semiconductor crunch are serving as a wake-up call, and governments and corporations are very likely to focus on fortifying their supply chains, moving crucial production back home. Separately, the government’s plan to overhaul aging infrastructure in the U.S. could also drive demand for some of the companies in our theme.
Within our theme, Applied Materials (AMAT), a company that supplies equipment, services, and software used in the production of semiconductor and display products, has been the strongest performer with its stock up by a solid 59% year to date. On the other side, industrial major Honeywell (HON) has been the weakest performer, with its stock up by just about 3% this year.
[6/2/2021] Capex Cycle Stocks
The prices of a variety of basic materials and products – ranging from metals and building products to semiconductors – have surged over the last few quarters, driven by pent-up demand following the Coivd-19 lockdowns, moves by companies to replenish or build up inventory, and also due to supply-side disruption. This has led to strong profit growth and stock price appreciation for manufacturing companies. While manufacturing and basic materials stocks remain a decent near-term play on the initial re-opening of the economy, there are risks that prices are peaking. On the other hand, we think that industrials and manufacturing equipment stocks might be the better long-term play, as companies look to upgrade their capabilities and invest in new capacity in order to meet demand. There are other trends that point to a big upcycle in corporate capital expenditure. Companies have witnessed rising profitability in recent quarters and the sizable stimulus efforts by governments worldwide following the Covid-19 pandemic could also incentivize investments. Moreover, President Biden’s plans to revamp America’s aging infrastructure and boost manufacturing capabilities, particularly in strategic areas such as semiconductors, are also likely to help these companies.
In our theme on Stocks That Benefit From Rising Business Spending, we’ve put together a list of companies that stand to benefit from stronger investment by businesses in the coming years. The theme is up by about 33% year-to-date, significantly outperforming the S&P 500 which is up by just 12% over the same period. Below is a bit more about the companies in our theme and how they have fared this year.
Caterpillar (CAT) is one of the largest producers of heavy machinery and construction equipment. The company stands to benefit from higher infrastructure spending by the Federal government and capital expenditure by businesses. The stock is up by 32% year-to-date.
Deere & Company (DE) manufacturers machinery used in agricultural, construction, and forestry. The company also sells diesel engines and drivetrains used in heavy equipment. The stock is up by about 34% this year.
Honeywell (HON) an industrial company that has products focused on aerospace, building technologies, performance materials, and safety and productivity solutions. The stock is up by just about 9% year-to-date.
Rockwell Automation (ROK) is a provider of industrial automation solutions. The company sells software, electromechanical equipment, and services that help businesses boost productivity and efficiency. The stock is up by about 5% year to date.
Applied Materials (AMAT) supplies equipment, services, and software used in the production of semiconductor and display products. The stock is up by 60% year-to-date, driven by the ongoing semiconductor crunch which is boosting demand and also due to increasing production complexity in the industry.
Oshkosh (OSK) is an industrial company that designs and builds trucks, airport fire apparatus, and access equipment such as lifts. The stock is up by about 53% year-to-date.
Looking for a balanced portfolio to invest in? Here’s a high-quality portfolio to beat the market, with over 150% return since 2016, versus 85% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk, it has outperformed the broader market year after year, consistently.
See all Trefis Price Estimates and Download Trefis Data here
What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product, R&D, and Marketing Teams
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.