Capex-heavy stocks showing signs of life
Should the era of secular stagnation come to an end, Charles Cara this week argues this could be a tailwind for companies that have invested heavily in capex.
Rates of capex to depreciation have fallen in the US and Eurozone, while depreciation to sales has risen. Charles sees three possible factors: 1) lower inflation has lowered the productive stock of fixed assets, 2) greater M&A meant companies may have been ‘buying’ rather than ‘building’ fixed assets, and 3) globalization may have reduced the need for capex. Over the last decade, capex-light stocks have returned almost 17% pa, vs 9% for capex-heavy.
Over the last decade, capex-light stocks were also high growth stocks. However, Charles notes signs of a shift. First, our Capex-heavy basket of stocks is no longer inversely correlated to the Growth factor. Further, Charles believes we could be at the trough of capex rates. With the ‘Disruptive’ Cash-burn stocks falling out of favor, capex-heavy stocks could outperform once again.