As the economy strengthens, businesses are putting money to work through upgrading and expanding their equipment. The pickup in capital goods could be a boon for a targeted capital expenditures-related exchange traded fund strategy.
Bookings for non-defense capital goods excluding aircrafts rose by a better-than-expected 0.9%, the most since August August, after a 0.2% rise in the previous month, reports Patricia Laya for Bloomberg.
Supporting the pickup in demand, business sentiment over the economy has strengthened following Donald Trump’s presidential election win, which has bolstered sales of productivity-enhancing equipment. Moreover, shrinking inventories, rising household demand and improved outlook on infrastructure spending could add to durable-goods orders.
“There’s some early evidence that business investment may be stabilizing,” Ryan Sweet, a senior economist at Moody’s Analytics Inc., told Bloomberg. “Investment has been a sore spot for the U.S. economy for a little bit now. Going forward we should see investment pick up.”
Looking ahead, Trump’s promises on easing regulations and cutting back on red-tape could help put more money back into companies’ coffers, especially if the Trump administration helps larger companies repatriate billions in overseas cash. With more money on hand, U.S. companies will be able to expand operations through investments and sustain growth.
Investors who want to target U.S. companies that allocate more toward capital expenditures may take a look at the Elkhorn S&P 500 Capital Expenditures Portfolio (NasdaqGM: CAPX), which focuses on those companies that are diligently reinvesting in their businesses to increase market share and competitive moat.
Specifically, CAPX takes the top 100 S&P 500 companies based on efficient capital expenditure as a way to track U.S. firms that have reinvested their money toward meaningful growth and innovation, including top components like Nvidia corp 1.5%, KeyCorp 1.4%, United Rentals 1.3%, Fifth Third Bancorp 1.3% and M&T Bank Corp 1.3%.
The fund includes a larger 22.2% tilt toward the financial sector, along with 17.0% tech, 16.3% health care, 16.3% consumer discretionary and 7.8% industrials.
If companies are not putting enough money back into expanding operations, people may see that capital expenditure is trending below depreciation. Through healthy level of reinvestment, companies are capable of sustaining earnings growth in the future.
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