Digital Behemoths
Ironically but not unpredictably, some of most brutish infrastructure tools now rely on products from nerds to function better. Ever notice that big commercial construction and sites no longer have long stretches of staked-out string along grading boundaries? That’s because the big earth movers now know exactly how far to go from ultra-precise global positioning systems. One such manufacturer is Trimble.
These systems enable huge earthmovers to operate fully autonomously. Call this juncture of traditional infrastructure items and digital technology “infratech.” Spanning the gap between today’s infratech and tradition industry is Hubbell which, along with high-tech products for electrical grid upgrades and data/communications items, produces items from the old lexicon of heavy industry: tools, dies and accessories.
Hubbell and Trimble are among a dozen small companies among the 93 held by the infrastructure ETF PAVE that exhibit the lowest downside risk in this fund, as shown by running them through the screens of Revelation Investment Research, a quantitative equities research firm. This analysis shows that the 12 companies have a higher expected total return over the next 12 months, with a 60% chance of beating the market.
The companies aren’t big boys by any means. Beneath many advisors’ radar, they have among their multi-industry product lines items used in infrastructure. As with Trimble and Hubbell, this low-risk group manufactures products that include infratech items. The other 10 are:
EMCOR Group, construction (and engineering) that includes including power transmission systems; Emerson Electric, products including include those for municipal water supplies; Rexnord Corp, motion-control and water management products and satellite communication; RPM, specialty chemicals, paints and coatings, including those for infrastructure rehab and repair; Eaton Corp., electrical and hydraulic systems; Crane Co., power generation and industrial construction products; Atkore International Group, electrical conduits and fittings for infrastructure; Lincoln Electric, arc welding systems; Rockwell Automation, technical solutions for process automation; Reliance Steel & Aluminum Co., carbon, alloy, stainless and specialty steel, aluminum, brass and copper.
Further, when it comes to the I-word, advisors would do well to get their heads around the idea that it no longer just means roads, bridges, airports, water systems, power system, etc. It also refers to IT/tech infrastructure, which includes the continuing boom in semiconductors, the Energizer-bunny industry whose products were becoming ubiquitous—in everything from toasters to electric cars—long before the pandemic.
Consumer and industrial spending on this other form of infrastructure stands to sustain this growth. Many of these companies haven’t slowed down as stay-at-home growth tech has slowed in recent weeks. From July 25 to Nov. 20, semiconductor ETF SMH rose 22.76%, drawing a bright line between the wane of pandemic-centric growth tech and the fortunes of semiconductors.
Where Semis Meet The Tsunami
Tech/IT infrastructure also includes data center and cell tower REITs. Though a rotation to value might siphon off some investment in these, this won’t limit the potential of such REIT players as Equinix, Digital Realty Trust and CyrusOne for sustained revenue from the coming 5G data tsunami, enabling them to continue paying healthy dividends.
Meanwhile, semiconductor companies will continue to produce chips that mushrooming data centers need to handle the tidal wave of data from industrial and retail applications of 5G speed (fully realizable once cell tower REITS such as American Tower and Crown Castle get enough towers sited, as 5G requires far more towers than 4G) and from consumer use--even broke people will get 5G phones with Skyworks radio-frequency transceivers through their carrier plans--that includes the internet of things (IoT), through which our refrigerators order groceries. (Remember to tell your fridge when you’ll be away on vacation.)
Along with Nvidia, Taiwan Semiconductor, Texas Instruments and Broadcom, other big players already benefitting from the evolving current 5G infrastructure rush include some household names: Qualcomm, Cisco, Microsoft and Apple. Lower profile tech names in this space include KLA Corp., Lumentum Holdings, MACOM Technology Solutions and Acacia Communications.