Is Your Portfolio Ready for the AI Revolution? Meet HALO.
For weeks, I’ve been pondering the comeback of ‘old economy’ stocks. The market, frankly, is spooked by the relentless march of AI disruption, leading to a significant re-rating of software companies – many down 30-50% in a blink. It seems everyone is trying to predict which tech giants will fall victim to AI’s intellectual prowess. But here’s the thing: AI’s core function is intelligence, and most white-collar tech companies are powered by brains, not steel, making them inherently vulnerable to this new wave.
So, where’s the safe harbor? Money has been quietly flowing into sectors and companies that simply won’t be disrupted by AI. This brings me to a brilliant framing from Compound Advisors: HALO – Heavy Assets, Low Obsolescence.
What Exactly is a HALO Stock?
The ‘asset’ part is pretty straightforward – think tangible, physical assets. The ‘low obsolescence’ is key; these are businesses so fundamental and physically entrenched that AI, for all its power, simply can’t replace them. They aren’t going to be automated out of existence overnight.
Compound Advisors points to a diverse group of companies that fit this mold:
- Phillips 66
- Corning
- Applied Materials
- Vulcan Materials
- Delta
- Caterpillar
- Ventas
- Hershey
On paper, these companies span wildly different conventional GICS classifications. But in a world redefined by AI, they share a crucial, protective characteristic: they are HALO.
Reversing the Trend: Why Asset-Heavy is the New Asset-Light
For years, the market adored ‘asset-light’ models. Less debt, higher margins, and when you layered growth on top, you had a recipe for supercharged profitability and sky-high multiples. But that era is rapidly reversing as AI disruption gets priced in.
Asset-heavy companies, with their massive capital requirements, have historically been slow growers. However, in our current rate-cutting cycle, that debt becomes less burdensome – a potentially durable advantage in an era of structurally high unemployment. What’s more, these companies are incredibly difficult to disrupt. Nobody is building a new coast-to-coast railway from scratch!
And here’s a point I’ve made before: for the past 15 years, venture capital has been so laser-focused on tech and software that there’s virtually no money or expertise flowing into developing heavy-asset startups. This ‘VC desert’ is, in fact, the new moat for established players.
The Hidden Opportunity: AI as an Optimization Engine for Low Margins
The low-margin nature of these businesses has always been seen as a drag on multiples. But I believe it’s now their greatest opportunity. While HALO companies can’t be disrupted by AI, they can profoundly benefit from it.
Imagine a utility with a $10 billion asset base, $2 billion in revenue, and thin 3% margins. Think pipelines, ports, commodity producers, railways, airlines, refineries. The opportunity for AI is pure efficiency. Even boosting margins by a single percentage point can unleash a torrent of profitability and cash generation. I’m particularly eyeing companies with large employee counts or a heavy reliance on consultants/sub-contractors – ripe for AI-driven trimming.
For these companies, AI isn’t revolutionary; it’s an optimization powerhouse. If an airline can squeeze 2% fuel savings through AI-optimized routing, dispatch, and operations, it’s a significant tailwind. If a refinery can optimize its fuel mix, monitor operations, or better schedule downtime, that’s meaningful bottom-line impact.
A SaaS company already running 40% margins simply doesn’t have that much ‘fat’ to optimize. But a pipeline operator or an airline generating 2-5% margins has an enormous operational surface area where even small, AI-driven efficiencies can compound into substantial earnings growth. That’s why I’m particularly keen on the low-margin aspect of this theme.
I might prefer to call them HALM – High Assets Low Margin – but I’ll admit, it’s not as catchy.
It brings to mind CNBC’s Mike Santoli’s observation yesterday about the ‘eye-watering’ capex from tech giants like Microsoft, Meta, Alphabet, and OpenAI: “The hyperscalers are spending $700 billion. That better be killing something or what are we doing here?”
Perhaps we’ll find a better acronym. TANK stocks: Tangible Assets, Not Killable. Or MOAT: Massive Operations, Asset-Thick. RAMP: Real Assets, Margin Potential. Whatever we call them, the idea is clear.
This article was written by Adam Button at investinglive.com.
Source: Original Article
