Tax-Cut Plan Triggers Fund Managers To Invest In Automation

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Trump’s plan to reduce corporate taxes may add more interest to the already-hot rally in the shares of automation companies. Fund managers anticipate that companies will utilize a portion of their tax savings to invest in expensive machines that over time will reduce labor costs.

That would be huge for companies like Cognex Corp (CGNX) which makes machine vision systems used to sort and fill orders in e-commerce warehouses and Faro Technologies Inc (FARO) which makes three-dimensional measuring tools which can reduce labor costs on aerospace assembly lines.

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“Scarcity of capital is the thing that keeps companies from spending money when it makes sense to do so. Investing in automation would be something that pays for itself quickly,” according to Matt Litfin, a portfolio manager of a $4.8-billion fund. Litfin also owns shares of Cognex, shares are up 80 percent year to date.

Overall this year, automation companies have rallied as corporate America sought to preserve margins. The $1.4 billion Robo Global Robotics and Automation Index ETF (ROBO), containing a combination of large-cap companies, like Rockwell Automation and Intuitive Surgical, has gained 35 percent for the year which is almost triple the 13.5 percent gain in the S&P 500 index.


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Large-cap automation companies have reported strong returns this year, such as Rockwell Automation Inc (ROKN) and Emerson Electric Co (EMRN) and small-cap companies have seen an increase in share prices.

The Robo ETF has posted positive inflows weekly since President Trump’s election. Investors adding $461 million into the fund since August when the Trump administration started announcing plans to reduce corporate tax rates from 35 percent to 20 percent.
Republican senators have criticized the Trump’s plan for its potential to increase the country’s deficit. But, fund managers believe they see gains for automation companies continuing whether a tax bill passes or not.

Middleby Corp (MIDD), the maker of smart ovens and other kitchen equipment that is used in restaurant chains like Panera Bread, may benefit since companies are seeking ways to reduce their labor costs as minimum wage increases. Shares of Middleby are flat for the year, but it is believed that the company shall prosper.

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