Companies’ capital expenditures are often vital to their growth. So it’s a metric investors should keep in mind when looking at stocks.
Bank of America strategists screened S&P 500 companies for the highest sales-growth sensitivity to non-residential fixed investment in structures (capital spending).
BofA included all three elements of non-residential fixed investment: structures, equipment and intellectual property products. The strategists included only stocks with at least 10 years of data.
Here are the top 10 companies in BofA’s list, with the company whose sales growth is most sensitive to capital expenditures listed first.
1. Kinder Morgan (KMI), an energy infrastructure company;
2. Twitter (TWTR), the social media company;
3. SolarEdge Technologies (SEDG), which makes solar inverters;
4. Intercontinental Exchange (ICE), which operates financial exchanges;
5. Ventas (VTR), a healthcare-related real estate investment trust;
6. ServiceNow (NOW), a business software company;
7. Nasdaq (NDAQ), a stock exchange operator;
8. Bank of New York Mellon (BK), a bank;
9. Arista Networks (ANET), a computer networking company;
10. WestRock (WRK), a corrugated packaging company.
Morningstar’s Take on Kinder Morgan
Morningstar analyst Stephen Ellis assigns the company a narrow moat and puts fair value for the stock at $17.50. It recently traded at $16.63.
“Kinder Morgan's assets span natural gas, natural gas liquids, oil, and liquefied natural gas,” he wrote in a commentary. “The company's U.S. gas pipeline business is particularly impressive.”
Kinder says its daily gas transportation capacity is equivalent to 40% of average U.S. gas consumption. “Kinder Morgan's size is both an opportunity and a challenge,” Ellis said.
Morningstar’s Take on Twitter
Morningstar analyst Ali Mogharabi gives the company no moat and puts fair value for the stock at $47. It recently traded at $36.67.
In the legal battle with Elon Musk, “we believe Twitter may have the stronger case,” Mogharabi wrote in a commentary. “Plus, … other parties may take an interest in Twitter.”
In any case, “we remain confident that the firm will continue to grow revenue (albeit at a lower rate than we had assumed before Musk’s offer) and expand margins,” Mogharabi said.
Morningstar’s Take on Solar Edge
Morningstar analyst Brett Castelli assigns the company no moat and puts fair value for the stock at $254. It recently traded at $269.
“SolarEdge is the largest global solar inverter manufacturer, based on revenue,” he wrote in a commentary. The inverter is the brains of a solar system, converting direct current produced by solar panels into alternating current used by households.
“SolarEdge has proved itself as a market share leader capable of achieving consistent profitability in the distributed solar inverter market,” Castelli said.
The author of this story owns shares of Ventas and Bank of New York Mellon.
