Investing in tech: Outside-the-box ways to earn off the digital revolution

Medical Economics Journal, Medical Economics September 2021, Volume 98, Issue 9

Market outlooks aplenty make optimistic predictions about the near-term future of autonomous vehicles, but should you invest in them?

Market outlooks aplenty make optimistic predictions about the near-term future of autonomous vehicles, but few investors are aware that Caterpillar has been producing the unmanned variety since the 1990s.

These vehicles work in mining, tirelessly, night and day, never stopping for lunch. As no humans are aboard, there isn’t the same handwringing over safety that there is with Teslas, which the company touts as being viable for autonomous fleets to carry non-owning passengers. (Don’t hold your breath waiting for this.)

Though you’ll never summon a behemoth earthmover to take you the dentist and then pick you up after chauffeuring others around, Caterpillar’s autonomous behemoths are arguably tech products. Yet, as they do industrial work, Caterpillar (CAT) is in the industrials sector.

The company also makes semi-autonomous vehicles, including human-driven earthmovers loaded with advanced technology to guide grading to specifications for boundaries, depth and slope--sonic lasers and GPS (eliminating the lines of staked-out string once ubiquitous at construction sites). And the company’s newest tech ventures include 3D printing capabilities to eventually enable the production of parts on job sites to reduce downtime; CAT has a dedicated plant where engineers are testing this technology.

Tech without the category

Caterpillar, founded in 1925, is in growing category of companies that use technology not as an add-on, but as an integral part of products that are nevertheless viewed by the market as being anything but technical. Some of these companies are developing and/or producing autonomous vehicles and/or systems. Others are pursuing different digital endeavors.

Unlike many new tech companies, these quasi-techs don’t trade at share prices hundreds of times earnings; they don’t carry this onus. Rather, these are long-established companies with real value, real profits and real earnings that keep their P/E ratios down to earth rather instead of up in the stratosphere. (CAT had a forward P/E ratio of about 20 on Aug. 3.) Unlike many high-flying tech companies listed on NASDAQ, Caterpillar didn’t pop up a year or three ago with venture-capital funding aimed at driving share price largely from market sentiment agog over all things tech. In 2025, CAT will celebrate its 100th birthday.

Investing in such companies, where appropriate for your portfolio and goals, can be a lower-risk way to position for returns driven broadly by the ongoing digital revolution—an economic engine that will continue to drive growth in pretty much all stock sectors, not just among tech companies per se, pushing the Dow Jones Industrial Average upward over the next few years.

Potential buying opportunity

The industrials sector stands to grow significantly in coming months from increasing demand in the post-pandemic economy, though constricted supply chains may take a while to open up because of the delta variant. Moreover, the infrastructure bill before Congress that, as of early August, seemed likely to pass, would give the sector a boost.

So much for tailwinds. A likely yet temporary market headwind would be a correction (a 10% drop) or a pullback of 5 to 7%. We’re long overdue for a correction, and the chances of this happening every August are increased by people going on vacation, meaning lower trading volume and potentially higher volatility.

A resulting correction or pullback would be a good buying opportunity.

Dave S. Gilreath, CFP, is a 40-year veteran of the financial services industry. He established Sheaff Brock Investment Advisors LLC, a portfolio management company based in Indianapolis, with partner Ron Brock in 2001. The firm manages more than $1 billion in assets nationwide.