2018 outlook: industrials

Digital transformation of the industrials sector holds long-term promise.

  • Industrials Sector
  • Investing in Stocks
  • Industrials Sector
  • Investing in Stocks
  • Industrials Sector
  • Investing in Stocks
  • Industrials Sector
  • Facebook.
  • Twitter.
  • LinkedIn.
  • Google Plus
  • Print

Even though artificial intelligence (AI)—the ability of machines to perform tasks with human-like intelligence—is a product of the information technology sector, many of the key applications to date are in industrials. Essentially, any process that can be automated can potentially be improved with AI, and many of the most promising applications are found in a variety of manufacturing environments. Whether the product is a medical device, a toy, smart lighting, or aircraft engines, the goal is to produce more and better-quality products at a lower cost, with shorter downtimes.

These benefits can be obtained through the use of "smart" equipment that can monitor data about production processes and make adjustments in real time. The Internet of Things, improved software and algorithms, data analytics, and advanced electronics all have contributed to AI's usefulness. AI now has the ability to perform in unstructured environments, and the "intelligence" to learn and operate autonomously. Thus, we see increasingly widespread use of industrial robots—that is, physical robots that execute tasks in manufacturing, agriculture, construction, and similar industries with heavy, industrial-scale workloads. Some industries, such as auto manufacturing, have used robots for years but have only scratched the surface of the potential for AI-equipped robots (see chart).

Similarly, in the water and electrical industries, hardware manufacturers are expanding their offerings of software-enabled products, as municipalities increasingly look to replace their existing infrastructure with solutions that leverage sensors and internet communication. "Smart" networks, data, and analytics could enable towns and cities to benefit from greater energy efficiency, reduced costs, and real-time monitoring.

Manufacturers of home and office environmental-control equipment are following a similar path. In "smart" houses, heating and cooling systems will use predictive analytics—the use of new and historical information to forecast future activity, behavior, and trends—to anticipate what temperature and humidity users prefer in specific circumstances.

While the adoption of AI remains in its infancy, areas that have high and fast return on investments such as lighting, robots, and energy efficiency are experiencing rapid growth and are high-conviction areas for investment today. I think AI represents a potential long-term growth driver for the sector, where its presence and significance will widen significantly in the medium term.

Next steps to consider

Research the Fidelity® Select Industrials Portfolio (FCYIX).

Get more investing ideas and sector insights.

Go back to the full 2018 sector outlook.

  • Facebook.
  • Twitter.
  • LinkedIn.
  • Google Plus
  • Print
Tobias Welo is a portfolio manager and research analyst for Fidelity Investments. Mr. Welo, who joined Fidelity in 2005, is responsible for managing multiple portfolios focused on the industrials and materials sectors. He also serves as sector leader for the industrials and materials sectors.
Fidelity Associate Analyst Eric Thompson also contributed to this report. Fidelity Thought Leadership Vice President Vic Tulli, CFA, provided editorial direction.
Fidelity Senior Sector Specialist Eadaoin Snee and Associate Analyst Eric Thompson also contributed to this report. Fidelity Thought Leadership Vice President Vic Tulli, CFA, provided editorial direction.
Index Definition: The S&P 500® Index is a market capitalization-weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation to represent U.S. equity performance. S&P 500 is a registered service mark of The McGraw-Hill Companies, Inc., and has been licensed for use by Fidelity Distributors Corporation and its affiliates.
Views expressed are as of Dec. 1, 2016, based on the information available at that time, and may change based on market and other conditions. Unless otherwise noted, the opinions provided are those of the author and not necessarily those of Fidelity Investments or its affiliates. Fidelity does not assume any duty to update any of the information.
Past performance is no guarantee of future results.
Investing involves risk, including risk of loss.
References to specific investment themes are for illustrative purposes only and should not be construed as recommendations or investment advice. Investment decisions should be based on an individual’s own goals, time horizon, and tolerance for risk.
This piece may contain assumptions that are “forward-looking statements,” which are based on certain assumptions of future events. Actual events are difficult to predict and may differ from those assumed. There can be no assurance that forward-looking statements will materialize or that actual returns or results will not be materially different from those described here.
Stock markets are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments.
Because of its narrow focus, sector investing tends to be more volatile than investments that diversify across many sectors and companies. Sector investing is also subject to the additional risks associated with its particular industry.
Industrials industries can be significantly affected by general economic trends, changes in consumer sentiment and spending, commodity prices, legislation, government regulation and spending, import controls, and worldwide competition, and can be subject to liability for environmental damage, depletion of resources, and mandated expenditures for safety and pollution control.
Third-party marks are the property of their respective owners; all other marks are the property of FMR LLC.
Votes are submitted voluntarily by individuals and reflect their own opinion of the article's helpfulness. A percentage value for helpfulness will display once a sufficient number of votes have been submitted.

Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917

818829.3.0
close
Please enter a valid e-mail address
Please enter a valid e-mail address
Important legal information about the e-mail you will be sending. By using this service, you agree to input your real e-mail address and only send it to people you know. It is a violation of law in some jurisdictions to falsely identify yourself in an e-mail. All information you provide will be used by Fidelity solely for the purpose of sending the e-mail on your behalf.The subject line of the e-mail you send will be "Fidelity.com: "

Your e-mail has been sent.
close

Your e-mail has been sent.