Discovering Growth in Traditional Companies Adopting AI Technologies
As the world increasingly embraces artificial intelligence, companies that may not initially spring to mind as innovators are beginning to reveal their potential benefits. According to Nancy Tengler, the CEO and Chief Investment Officer of Laffer Tengler Investments, those organizations that have adeptly transitioned into the digital realm stand to gain substantially. With the current bullish market trend, technology stocks have not managed to maintain the exceptional advantage they once held over various sectors. Notably, since the election on November 5, the Russell 2000 index has seen a growth of 5.4% while the S&P 500 index recorded a modest 5% increase within the same timeframe. Tengler now aims to concentrate on investing in traditional companies that have embraced contemporary technological advancements as they move forward in the AI landscape.
Capitalizing on Shifts in Industry 💡
Tengler asserts that her investment philosophy has remained consistent over the past few years, emphasizing that serious advancements are still on the horizon. Highlighting the “old economy” firms that have pivoted toward emerging technologies, she stated, “Our theme is the old economy companies that have pivoted to new technologies.” In the industrial sectors, she notes, this involves both companies that have adapted to the changes and those supplying the necessary tools and services essential for what she describes as a “fourth industrial revolution.”
Walmart: A Case in Point 🏬
Tengler points to Walmart as a pivotal model, showcasing the company’s strategic utilization of generative AI and robotic stocking systems. This innovation aids in cataloging products and organizing inventory on shelves, ultimately reducing labor expenses. Furthermore, the retail giant has leveraged technological advancements to optimize its supply chain, achieving greater efficiency compared to rivals like Target and Kohl’s, which, according to Tengler, have not kept pace with such innovations. Analysts have shown strong confidence in Walmart, reflected in 41 out of 44 ratings deemed either a strong buy or a buy, based on data from LSEG.
Home Depot’s Resilient Performance 🔨
Another company that Tengler favors is Home Depot, which surprisingly ended the previous year at just 2% above the starting point but has since experienced a robust increase of 22% in 2024. Much like Walmart, Home Depot has turned to AI and cloud computing technologies to enhance its online sales and to manage its supply chain more effectively. “Those are the companies that we’re focused on in our portfolios,” she explains, attributing this strategic selection to the current economic landscape’s resemblance to the 1990s—a period characterized by productivity-driven growth that significantly impacted stock valuations. Analysts echo this sentiment for Home Depot, with a majority of ratings falling under strong buy or buy categories, according to LSEG.
Tools and Services for AI Growth ⚙️
Within the industrial and consumer discretionary sectors, Tengler expresses interest in firms that provide critical tools and services that support the AI domain. She specifically mentions Emerson Electric and Quanta Services, known for developing data centers. Tengler also highlights the water treatment company Xylem as an appealing prospect, as it offers data center cooling solutions and has embraced digital innovations to address challenges faced by water utility providers.
Financial Services and Productivity Enhancement 💹
Furthermore, Tengler identifies the financial services sector as another area where generative AI is making an impact on productivity levels, particularly in applications like fraud detection. The bullish sentiment surrounding financial stocks has largely persisted following the election, with speculation that another Trump presidency could result in more favorable regulations and potentially invigorate capital market activities. Since the election, the financial sector within the S&P 500 has risen by over 5%.
A Long-Term Vision for the AI-Driven Market 🌐
Tengler’s focus on investing in traditional companies transitioning to AI is not a new approach for her. Earlier this year, she noted that “Generative AI is much more compelling of a story than the internet was in many ways” when it comes to enhancing productivity. With these insights, she encourages a forward-looking perspective toward businesses that are strategically adopting these pivotal technologies, setting the stage for future growth and innovation.
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