Investing intelligence: Tech companies with industrial clothing

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. 

Stealth tech companies

Here’s a look at the tech prowess of some of these stealth tech companies:

• Deere & Co. (DE). Founded, 1837. Forward P/E: about 20, as of Aug. 3. Known for its consumer products-- riding lawnmowers and small tractors (one that’s fully electric)--Deere also manufactures a line of commercial vehicles for agriculture, forestry and construction: huge fully autonomous and semi-autonomous tractors, autonomous aerial drones to spray crops and AI-equipped vehicle attachments that can distinguish different species of weeds and choose the best way to kill them, and high-tech command cabs for manned vehicles.
• Rockwell Automation (ROK), forward P/E, about 33. Though this company is squarely in the industrial sector, it’s products are nonetheless technical. It manufactures a diverse range of products: systems for manufacturing control and monitoring, security infrastructure management, safety, motion-control and timing.
• Corning. Founded, 1852. Forward P/E: about 19. Expertise with ceramics and glass have taken the company on what it calls the “journey of glass” to now making screens for cell phones and computers and optical fiber. Aside from technical products, Corning products are used in pharma (including vaccine vials) and life sciences. This is no longer your great, great-grandfather’s casserole-dish company.
• Paccar (PCAR). Founded, 1905. Forward P/E: about 14. This manufacturer of long-haul trucks (including its trucker-prized Kenworth 18-wheeler tractor), the category expected to be the first widely operating autonomous vehicles. Paccar is a leader in electrification, and is advancing partnerships researching emerging technologies, including advanced driver assistance, artificial intelligence, vehicle connectivity, augmented reality, electric and hydrogen fuel cell powertrains and applications of data analytics. This company is unique for its transparency, as it routinely publishes research findings online.
• Raven Industries (RAVN), Founded, 1956. Forward P/E, about 72. This company makes GPS steering systems, specialized membranes and liners, high-altitude balloons, radar systems, field computers, guidance and steering systems, machine control systems and field computers. Global users include industry, agriculture (driverless farm machinery), energy, construction and defense.
• Magna International (MGA), Founded, 1957. Forward P/E: about 11. Magna makes electrified powertrains, automated driving systems and automobile wiring subsets—a product line likely to benefit from Biden-administration-favored subsidies for electric and autonomous vehicle technologies. Its website includes a word that sums up the application of electronics to cars: “mechatronics.”
• Trimble (TRMB). Founded, 1978. Forward P/E, about 35. Though Trimble is an actual tech company—it makes digital products and is traded on NASDAQ—the customers who use its products--from handheld rangefinders to onboard GPS systems to 3D real-time data communication systems and remote sensing technology (LIDAR) for coordinating smart machines to construction site data collection robots—aren’t nerds staring a computer screens but real people doing real work. Products are used in surveying, mapping, construction, public safety, transportation, utilities, shipping, infrastructure management, multilocation project management, farming, mining and forestry. Trimble has been in partnership with Caterpillar since the 1990s.
• Lockheed Martin Corp. (LMT). Founded, 1912. Forward P/E: about 14. This company, renowned for its supersonic jets, Sikorsky helicopters and defense systems, is also becoming known for natural technical offshoots that have broad potential applications across various commercial and consumer tech markets. Directly or through partnerships, Lockheed is pursuing robotics, data analytics and artificial intelligence, materials science, nanotechnology and information science.

To a considerable extent, these are technical companies in industrials’ clothing. Yet Cathy Wood, the tech-savvy founder of Ark Funds, which manages the ETF ARKQ (Autonomous Technology and Robotics), apparently sees through the industrial garb, for the fund owns shares of Deere, Caterpillar, Paccar, Magna International, Lockheed Martin and Trimble.

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, a certified financial planner, 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.