Investors Turn to Industrials and Materials Stocks as U.S. Market Embraces Artificial Intelligence, Says Research

As the U.S. stock market continues to be enthusiastic about artificial intelligence (AI), some investors are turning to sectors such as industrials and materials stocks, which have a high proportion of value stocks. Photo taken at the New York Stock Exchange in February (2024 Reuters/Brendan McDermid)

[ニューヨーク １日 ロイター] – As the U.S. stock market continues to be enthusiastic about artificial intelligence (AI), some investors are turning to areas such as industrials and materials stocks, which have a high proportion of value stocks.

This could be a sign that the rise in the S&P 500 (.SPX), opens new tab is spreading across a broader range of stocks than just a handful of tech growth stocks.

“Long-term value stocks are clearly attractive,” said Quy Nguyen, chief investment officer of equities at Research Affiliates. “These companies are still very cheap, and many are already “We are undergoing a difficult process of restructuring our business and balance sheet.”

The S&P 500 has risen 7.7% year-to-date, hitting a new high. Against this backdrop, the S&P 500 Value Index (.IVX), opens new tab rose 3.3%, lagging behind the S&P 500 Growth Index (.IGX), opens new tab, which rose 11.6%.

But it’s the traditional sector that has seen some activity in recent weeks.

The S&P 500 Industrials sector (.SPLRCI), opens new tab has gained 7.1% in the past month. It was led by gains in General Electric (GE.N), opens new tab and Howmet Aerospace (HWM.N), opens new tab. The materials sector (.SPLRCM), opens new tab also rose 6.7% in February, led by Vulcan Materials (VMC.N), opens new tab and Ecolab (ECL.N), opens new tab.

Michael Hunstad, deputy CIO and head of global equities at Northern Trust Asset Management, believes in the Magnificent Seven, which consists of the S&P 500 and the growth tech stocks that have driven its rise. We believe that the expected PER (price/earnings ratio) has expanded too much.

The nearly 20% decline in electric vehicle (EV) maker Tesla (TSLA.O), opens new tab this year shows how quickly these stocks can turn around.

“We expect the risk of a decline in forward P/E ratios to increase, especially for the Magnificent Seven,” he said, adding that he is increasing his positions in sectors with a large number of value stocks, such as healthcare and energy.

He also points out that value stocks have relatively short-term cash flows and are less affected by borrowing costs, so they are likely to be better able to weather prolonged periods of high interest rates than growth stocks.

Robert Robotti, CIO of Robotti & Company, said he is increasing investments in industrial and health care stocks, as value stocks will see the greatest efficiency gains from AI, potentially boosting margins and valuations. . He said, “AI is not only used by companies that sell semiconductors, but also companies that purchase it and make profits by increasing efficiency.”

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2024-03-03 23:06:02
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