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The Trump administration’s plan to cut corporate taxes may add more fuel to the already-hot rally in the shares of automation companies.
Fund managers from Columbia Management Investment Advisers, Hodges Capital and Hood Capital say they expect that companies will use part of their tax savings to invest in high-cost machines that will allow them to reduce labor costs over time.
US President Donald Trump’s tax cut plan was aimed to help working people, create jobs and make the tax code more simple and fair.
That would be a boon for companies such as Cognex Corp, which makes so-called machine vision systems that are used to quickly sort and fill orders in e-commerce warehouses, and Faro Technologies Inc, which makes three-dimensional measuring tools that can help lower labor costs on aerospace assembly lines.
“Scarcity of capital is the thing that keeps companies from spending money when it makes sense to do so. Investing in automation would be something that pays for itself quickly,” said Matt Litfin, a portfolio manager of the Columbia Acorn fund, who owns shares up to 80 percent year-to-date on Cognex Crop.
Automation companies have rallied overall this year as corporate America looks for ways to maintain margins and productivity at a time when wages are rising and unemployment is low.
Along with lower corporate income tax rates, cutting taxes for small businesses, reducing the top income tax rate for individuals and scrapping some widely used tax breaks including one that benefits people in high-tax states dominated by Democrats, Trump’s tax cut plan would lower the top individual rate to 35 percent from 39.6 percent.
Companies in the United States pay high taxes by global standards but many of them pay much less than the headline rate due to loopholes and tax breaks.
Under Trump's plan, numerous fund holdings are up over 90 percent for the year to date, including drone manufacturer AeroVironment Inc, gear manufacturer Harmonic Drive Systems Inc, and laser company IPG Photonics Corp.
Large-cap automation companies, such as Rockwell Automation Inc and Emerson Electric Co, have also posted solid returns so far this year, though smaller-cap companies have seen larger share price gains overall.
Prominent Republican senators such as Bob Corker and Rand Paul have criticized the Trump administration’s plan for its potential to increase the federal deficit, leaving its passage far from certain. Yet fund managers say that they see the gains in automation companies continuing regardless of whether a tax bill passes.
“Even eight years after the financial crisis, companies are still very focused on their bottom lines and maintaining efficiency and productivity as much as possible,” said Eric Marshall, a portfolio manager of the Hodges Small Cap fund.
(CGTN)
