Our theme of Shares that benefit from capital expenditure is up 31% year-to-date, outperforming the S&P 500 which is up 17% over the same period. The theme is also up 72% since the end of 2019. The theme includes heavy equipment manufacturers, electrical system suppliers, automation solution providers and semiconductor manufacturing equipment players which are expected to benefit from increased capital spending by business and government. On Friday, the United States Senate voted with a large majority to advance the $ 1 trillion infrastructure bill, which prioritizes upgrading roads, bridges, railroads, l water and related public works. If the bill is finally enacted, it could trigger the biggest investment in U.S. infrastructure in about a century. Separately, there is also a strong incentive for businesses to prioritize capital spending, given low interest rates, strong corporate profit growth and rising prices thanks to the reopening of Covid-19.
In our theme, Applied materials
Our theme of Equities benefiting from the rise in corporate spending is up 30% year-to-date, significantly outperforming the S&P 500 which is up around 15% over the same period. The theme includes heavy equipment manufacturers, electrical system suppliers, automation solution providers, and semiconductor manufacturing equipment players who are expected to benefit from increased corporate capital spending. In our theme, Applied Materials, a company that supplies equipment used in the production of semiconductors and display products, was the top performer with inventory rising 64% year-to-date. On the other hand, industrial major Honeywell has been the worst performer, rising its stock by around 2% this year.
So what are the prospects for the theme? The US Federal Reserve has become increasingly hawkish after its mid-June meeting indicating that it could start raising interest rates from 2023, rather than from 2024. Now the wait higher rates strengthened the US dollar, which, in turn, could impact US industry. and manufacturing companies to some extent, making their products more expensive abroad. That said, we believe any negative impact from rate hikes will be more than offset by growth in domestic demand. Corporate profits soared in 2021, prompting companies to invest in upgrading and expanding their capabilities. In addition, trends in the relocation of manufacturing capacity overseas and the US government’s significant infrastructure plan should also help these actions in the medium to long term.
[6/17/2021] Capex Cycle Stocks
Our theme of Equities benefiting from the rise in corporate spending, which includes heavy equipment manufacturers, power system suppliers, automation solution providers and semiconductor manufacturing equipment manufacturers expected to benefit from higher capital spending, is up 29% year-to-date, significantly outperforming the S&P 500 which is up just 13% over the same period.
There are several trends that point to a sharp increase in capital spending in the economy. With demand for almost everything booming in the wake of Covid-19 lockdowns, companies are seeing strong price trends and profit growth. This could prompt them to double capacity expansions and upgrades. Additionally, companies have underinvested in capacity for decades as they shifted to thin asset 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 crisis are serving as wake-up calls, and governments and businesses are very likely to focus on strengthening their chains. supply, by repatriating crucial production. On the other hand, the government’s plan to overhaul aging infrastructure in the United States may also stimulate demand for some of the companies in our theme.
Within our theme, Applied Materials, a company that provides equipment, services and software used in the production of semiconductor and display products, was the top performer with inventory up 59% since the beginning of the year. On the other hand, industrial major Honeywell was the worst performer, rising its stock by around 3% this year.
[6/2/2021] Capex Cycle Stocks
Prices for a variety of materials and commodities – ranging from metals and construction products to semiconductors – have risen in recent quarters, driven by pent-up demand following the Coivd-19 lockdowns, measures taken by companies to replenish or build up stocks, and also because of disruptions on the supply side. This has resulted in strong earnings growth and an appreciation in stock prices for manufacturing companies. While inventories of manufactures and basic materials remain a decent short-term game for the initial reopening of the economy, there are risks that prices will peak. On the flip side, we believe industrials and manufacturing equipment stocks might be the best option in the long run, as companies look to upgrade their capabilities and invest in new capabilities to meet demand. There are other trends that point to a sharp increase in business capital spending. Companies have seen their profitability increase in recent quarters, and the massive stimulus efforts by governments around the world in the wake of the Covid-19 pandemic could also spur investment. What’s more, President Biden’s plans to revamp America’s aging infrastructure and boost manufacturing capabilities, especially in strategic areas like semiconductors, are also likely to help these companies.
In our theme on Equities benefiting from the rise in corporate spending, We have compiled a list of companies that should benefit from greater investment from companies in the years to come. The theme is up around 33% year-to-date, significantly outperforming the S&P 500 which only rose 12% over the same period. Below is a bit more about the companies in our theme and how they have performed this year.
Caterpillar is one of the world’s largest producers of heavy machinery and construction equipment. The company is expected to benefit from increased federal government infrastructure spending and business capital spending. The stock is up 32% year-to-date.
Deere & Company
Honeywell is an industrial company that offers products focused on aerospace, building technologies, performance materials, and safety and productivity solutions. The stock is up about 9% year-to-date.
Republic of Korea
Applied Materials provides equipment, services and software used in the production of semiconductors and display products. The stock is up 60% since the start of the year, due to the current semiconductor crisis driving demand and also due to the increasing complexity of production in the industry.
Oshkosh is an industrial company that designs and manufactures trucks, airport fire apparatus, and access equipment such as elevators. The stock is up about 53% year-to-date.
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