Everyone knows about the lower corporate tax rates in the new federal tax law. But there’s also a much less talked about provision of the law that will benefit many industrial companies—and their investors. The provision allows companies to take a 100% deduction on capital expenditures, also known as capex, for the tax year in which the money is spent. Capex refers to expenditures to buy, maintain or improve fixed assets such as factories and equipment. In the past, the law required businesses to stretch out deductions for capex for years—sometimes as long as 39 years.
The ability to immediately deduct capex, coupled with stronger US economic growth, should lead many companies to spend aggressively to upgrade and replace their fixed assets. Goldman Sachs predicts that companies in the Standard & Poor’s 500 stock index will spend 8% more on capex in 2018 than in 2017, on average—and that industrial and manufacturing companies could increase capex at twice that pace.
How investors can take advantage: This massive additional spending is likely to most directly boost the profits of companies that provide electrical and mechanical equipment for factory floor operations. Attractive industrial stocks poised to benefit…
Emerson Electric (EMR) makes industrial products ranging from control valves to electrical fittings for the oil, gas and chemical industries.
Rexnord Corp. (RXN) is a 126-year-old manufacturer of bearings, couplings and conveyor components for dozens of industries ranging from power plants to mining operations.
Rockwell Automation (ROK) designs automation equipment and sensors to make manufacturing plants more efficient. It’s a major supplier to auto- and consumer-product makers.
