Innovation provides plenty of investing opportunities in industrials and technology. Choosing the best companies often means following the money.
The sector has seen sales growth, and that bodes well for capital spending, which tends to lag sales, says Chris Kerlow, CFA, in a Richardson GMP market report. He cites consultancy-services company WSP as a stock benefiting from increased capex spending. The company focuses on engineering projects outside Canada.
“The stock offers a very attractive 2.9% dividend yield, which is supported by strong fundamentals,” he says.
Read: Watch for dividend cuts
Kerlow’s firm also holds names that capitalize on U.S. defence spending. An example is General Dynamics, which recently won a contract to create submarines for the U.S. Navy.
“The stock also acts as a hedge, should geopolitical risks drastically rise,” he says.
In tech, corporate spending might be an even bigger tailwind, as companies invest in upgraded systems that can thwart cyberattacks, says Kerlow.
He names Canadian company Evertz Technology, a market leader in entertainment solutions, as a unique choice for his firm. That’s because larger fund competitors often can’t take advantage of such small companies because of liquidly considerations.
More familiar names are Intel and Microsoft. The former offers nearly 3% dividend yield supported by cash flows from its market-leading seminconductor chips, says Kerlow. The latter has seen 98% growth in its server products and tools division with Azure, the hybrid cloud offering.
“Valuations have begun to get a little stretched, but we continue to hold a modest weight in the name,” he says of Microsoft.
Innovation also comes to the sector in the form of e-commerce. For example, “TFI International and UPS specialize in getting tools and supplies to infrastructure developments,” says Kerlow. He’s further positive on e-commerce because it serves a global marketplace and benefits from healthy competition.
Read the full report.