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AI Hype Fuels Industrial Stocks; Buy These Later
2 Oct
Summary
- Industrial stocks surge due to AI infrastructure build-out.
- Waste Management (WM) offers steady growth and future energy revenue.
- Canadian Pacific Kansas City links major North American economies.
The stock market is currently captivated by industrial companies benefiting from the artificial intelligence (AI) infrastructure boom. This intense focus has driven valuations to premium levels, with the belief that AI investment will continue indefinitely. However, this surge might be a precursor to a market correction.
Investors are reminded that the AI revolution is only in its early stages, with a potentially massive global rollout yet to come. While the R&D phase is ending, the true expansion is anticipated to be significantly larger.
Two industrial companies not directly tied to the AI craze offer potential value. Waste Management (WM), North America's largest waste-removal and recycling firm, benefits from long-term contracts with inflation-linked price adjustments. Its expansion into recycling and landfill-to-energy projects presents future growth drivers, even as it currently trades at a premium P/E of 29.
Canadian Pacific Kansas City (CP), a recently formed railroad company, operates a vital network connecting Canada, the U.S. Midwest, Great Lakes, and Mexico. This extensive rail infrastructure remains essential regardless of AI market fluctuations.
Historically, WM has demonstrated strong returns, with an 884.4% total return since early 2009 following a market downturn. These steady, essential businesses could prove resilient and offer attractive entry points after a potential market correction.
