Investors might complain about it, but they know companies must spend money to make money. And get this. The companies increasing spending on upgrading equipment and facilities are actually investors' favorites.
There are 11 companies in the Standard & Poor's 500, including single-cup coffee brewer Keurig Green Mountain, airline Southwest and drugmaker Eli Lilly that not only spent 5% or more of revenue on capital expenditures the past 12 months, but also increased their investments relative to revenue by 50% or more in the most recent quarter, according to a USA TODAY analysis of data from S&P Capital IQ. Capital expenditures are cash investments made to improve or upgrade their equipment or facilities. Financials, utilities and energy companies were excluded from the analysis.
These 11 stocks are up 34% on average over the past twelve months, which is more than twice the 15% gain of the S&P 500 during that time. The data show that though investors might bellyache when companies spend money to plow their businesses, the stocks aren't punished, but in fact, outperform — at least lately. Below is a custom equal-weighted index of the stocks that boosted their capital expenditures compared with the S&P 500.
Take the example of Southwest Airlines. The company's spending on capital expenditures in the second quarter reached nearly 10% of its revenue. That's up 140% from the 4.2% of revenue it spent on capital expenditures in the second quarter of 2013. That's even greater than the 5% of revenue that rival Delta Air Lines plowed into capital expenditures in the second quarter.
But even with that massive increase in investment, shares of the stock are up 108% over the past 12 months, even better than Delta's 78% gain. Southwest this year through June has spent $907 million in capital expenditures on everything from new aircraft to slots at Ronald Reagan Washington National Airport.