Issue link: https://info.seic.com/i/1495701
6 · 10 INVESTMENT THEMES FOR 2023 Cheryl Frank is an equity portfolio manager with 24 years of experience. She is a manager for American Mutual Fund®. CapEx is on the rise and it could be setting the stage for an industrial renaissance. I'm paying close attention to how increased capital expenditures will benefi t suppliers across industries — what I call pick-and-shovel companies. Investors sometimes overlook these businesses, but they often have more stable cash fl ows and lower risk profi les compared to the companies they service. Record-breaking cash fl ow over the last 12 months has left oil producers with some of the strongest balance sheets in history. When energy companies profi t, they typically expand exploration and production, which requires more machinery and services. This could be a source of growth for companies that provide technology, products and services to the energy industry. Another interesting trend is how much money has fl owed into health care research and development (R&D). Pharmaceutical companies that successfully developed vaccines and anti-viral treatments like Pfi zer piled up cash. Much of this capital will likely be funneled into more R&D for companies that support the biopharma industry, such as Danaher and Thermo Fisher Scientifi c. I'm keeping an eye on several other multi-year trends that could lead to increased capital investment and drive opportunity for a wide range of industrials. These include Europe's focus on energy security, rising aerospace and defense spending, and reshoring supply chains. 5. Industrial renaissance Sources: Capital Group, MSCI. Company examples refl ect some of the largest constituents (ranked by descending market value) within the MSCI ACWI that fall into GICS sub-industries that supply products and/or services aligned with the factors expected to contribute to capital expenditures listed above. As of 1/17/23. Factors driving capital expenditure cycle Examples of companies that can supply products or services Aerospace and defense • Raytheon • Honeywell • Boeing • Lockheed Martin • Northrop Grumman • Safran Reshoring supply chains • Caterpillar • Siemens Energy • Keyence • Schneider Electric • Rockwell Automation • Parker Hannifin Europe's energy security • Caterpillar • General Electric • ABB • Halliburton • Baker Hughes U.S. energy investment • Schneider Electric • Eaton • ABB • Emerson Electric • Rockwell Automation • Siemens Energy Four trends could contribute to an industrial renaissance