A new economic cycle is emerging, driven by high interest rates, high inflation, and the rapid growth of artificial intelligence (AI). According to VT De Lisle America Fund, this cycle is best compared to the 1970s, but with the addition of AI. In this new industrial economy, companies that own scarce real-world assets and have growing order backlogs gain pricing power and are well-positioned to thrive.
One such company is Honeywell's Solstice Advanced Materials, which holds an oligopolistic position in refrigerants and has a stake in the only US uranium conversion facility. Although expensive-looking at a high 20s p/e, its earnings power is underappreciated as its chip exposure grows and higher-priced uranium contracts begin to roll in.
Another company, Forum Energy Technologies, makes high-tech parts for oil wells and subsea exploration. It operates in a high-value niche and is a leading player in all its product lines, with low reinvestment requirements providing high levels of cash generation. Despite a near tripling over a year, the stock is considered a buy given its cheapness relative to cash flow.
Finally, Pennant Group owns, leases, and operates care facilities for the elderly and sees the ageing population in the US as a steady tailwind to increase sales for years. Its ability to renovate old buildings to add value in a market where supply is constrained by the cost of new-builds is impressive, giving it a high double-digit growth rate and a low 20s p/e.