Since the 2008 meltdown corporate America has taken advantage of the Federal Reserve's largesse and a recovering economy to rebuild their balance sheet liquidity to record levels. Unfortunately they've been spending that windfall on dividends and buybacks as opposed to investing in infrastructure for the long term. As a result corporate buybacks and stock prices are at record levels while the overall economy remains stagnant.
According to a survey of CEOs at the Business Roundtable, companies are finally starting to invest again. 50% of corporate CEOs say they plan to increase capital spending in the next 6 months, up from just 39% in last quarter’s survey.
In the attached video Danielle Hughes of Divine Capital says the trend is real. “What we’ve been watching is cap-ex growth. That’s something that’s starting to happen with all the cash that these big corporations have. We like to see that because it means they’re investing in the future growth of the company.”
The key word is “growth.” Hughes says companies that have spent the last half decade conserving cash and shuffling their balance sheets are once again expanding. It creates a best of both worlds opportunity to get long hybrid value blue chips with a growth kicker.
She likes the industrial and energy sectors but one of her favorite ideas is UPS (UPS). Big brown and its competitor FedEx (FDX) are coming off terrible quarters but the stock market is giving them a pass. FedEx reported a soft quarter this morning yet the stock is higher. That’s solid evidence that the stock market is looking to the future.
Whether investors think UPS can realize its growth dreams the stock has obvious support despite negative news flow. That makes stocks like UPS with a 2.8% yield a solid investment for those looking to play a potential rise in capital spending.
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