Alpha Buying: 8 Global Stocks Positioned for the Next Investment Boom

One thing I like about Henry McVey and the KKR team is that they spend time talking to people who are running businesses and putting capital to work.

Their October report, Thoughts From the Road: Europe and Asia, makes a point investors should not miss:

The investment cycle is getting broader than the AI story that has dominated the headlines.

AI is still a powerful driver, but it is competing for capital, workers, and electricity with defense, power, infrastructure, and supply-chain security.

Governments and businesses are spending to build more resilient systems and bring important production closer to home.

That spending can create opportunity for investors, even if the market takes a few detours along the way.

KKR sees European growth leaning more on business investment, defense, infrastructure, and regional trade.

In Asia, the team highlights Japan’s role in the AI supply chain and Korea’s corporate reform effort.

Those are the three themes I want to focus on this week.

We will look at companies that sell the equipment, materials, and systems needed to support those investments.

These are candidates for further research, not automatic buys.

A good industry story does not make every stock a bargain. We still need to look at the balance sheet, valuation, earnings, and share price trend.

Japan: The Companies Behind the Chips

When investors talk about AI, the conversation usually starts with the chip designers and cloud companies.

KKR’s report makes a good case for looking further up the supply chain.

Japanese companies make equipment and materials that chipmakers need to manufacture their products.

They may not get the same attention as the companies designing the chips, but they are an important part of the business.

And unlike the companies racing to develop the next breakthrough chip, these businesses can benefit from the spending required to manufacture increasingly sophisticated semiconductors.

Tokyo Electron (TOELY): The Equipment Behind Semiconductor Production

Tokyo Electron makes equipment used to manufacture semiconductors.

Its tools help turn silicon wafers into working chips, putting the company right in the middle of the industry’s push to build more advanced production capacity.

The investment case is straightforward.

As chipmakers build and upgrade manufacturing facilities, they need increasingly sophisticated equipment to produce the chips that power everything from smartphones to AI data centers.

Tokyo Electron supplies some of that equipment.

That gives the company a direct connection to AI investment, but it also makes the business cyclical.

Chipmakers can pull back on spending when demand weakens, and the market sometimes prices in years of growth before the orders arrive.

I would watch the order trend, margins, and valuation before deciding whether the stock is attractive.

Advantest (ATEYY): Making Sure the Chips Actually Work

Advantest makes equipment that tests semiconductors.

Its systems check that chips work as designed and meet performance standards.

The company tests both memory chips and system-on-chip products, and it also makes equipment that handles devices as they move through testing.

The more important chips become, the more important it is to know they work reliably.

A defective chip can be an expensive problem, especially when it is going into a data center or another demanding application.

Advantest gives us a way to invest in that necessary part of the supply chain.

The company does not need to design the winning AI chip. It needs manufacturers to keep producing and testing increasingly sophisticated devices.

That is an attractive position to investigate.

The risk is that chip spending can slow quickly, and a strong business can still make a poor investment at the wrong price.

Shin-Etsu Chemical (SHECY): The Materials Every Chipmaker Needs

Shin-Etsu is a broad chemical company, but its semiconductor materials business is what catches my eye here.

It makes silicon wafers and other specialized materials used in chip production, including photoresists and photomask blanks.

These are not the kind of products that make for exciting cocktail-party conversation.

That is part of the appeal.

They are essential inputs in a complicated manufacturing process, and customers cannot simply swap in an untested material without consequence.

Shin-Etsu offers a different kind of exposure than an equipment maker.

Its materials are used throughout the production process, and the company serves markets beyond semiconductors.

That broader business mix gives us something different to examine than a company whose fortunes depend primarily on equipment orders.

I would still want to see how Shin-Etsu manages capacity and profits through a downturn.

The AI theme helps explain why the company belongs on the list.

It does not settle the valuation question.

Europe: Defense, Power, and Industrial Investment

KKR describes a Europe where defense, infrastructure, energy security, and industrial investment are doing more of the work.

These trends reinforce one another.

More defense production requires industrial capacity.

Data centers and electrification need power.

Modernizing the grid takes equipment, money, and time.

The opportunity is not limited to companies selling directly into the AI industry.

It extends to established businesses supplying the equipment and systems that governments and companies need to expand capacity and improve security.

Three companies deserve a closer look.

BAE Systems (BAESY): A Direct Play on Defense Spending

BAE Systems makes defense, aerospace, and security products for air, land, sea, and space.

Its businesses include advanced electronics, surveillance, communications, and electronic warfare systems.

It also has a substantial U.S. business.

This is a direct way to follow increased defense spending among the United States and its allies.

The investment case rests on more than a short burst of headlines.

Defense equipment takes years to develop, manufacture, and maintain.

BAE’s established programs and specialized systems give it a meaningful role in that spending.

Governments looking to expand military capabilities cannot simply place an order and expect a sophisticated defense system to appear next week.

They need established suppliers with the engineering, manufacturing, and support capabilities to deliver.

That makes BAE worth investigating as defense investment increases.

There are risks, of course.

Defense programs can run into delays, costs can rise, and government priorities can change.

The stock price also matters.

BAE Systems is a company to research, not a reason to assume any defense stock is worth any price.

Rolls-Royce (RYCEY): More Than Aircraft Engines

Rolls-Royce is best known for its aircraft engines, but the company has several businesses that connect to this week’s themes.

It operates in civil aerospace, defense, and power systems, and it has nuclear capabilities.

Its engines and services support commercial aircraft, while its defense business supplies propulsion and other systems for aircraft, ships, and submarines.

Its power systems business serves customers that need dependable, mission-critical power.

That makes Rolls-Royce a more varied investment than the name might suggest.

The company has potential exposure to defense spending, aviation, and the demand for reliable power.

Those businesses do not all move for the same reasons.

Commercial aviation depends on aircraft activity and the industry’s operating conditions.

Defense depends heavily on government programs and spending priorities.

Power systems can benefit from customers investing in dependable electricity.

Together, they give us several business lines to examine rather than a single bet on one industry.

The risks deserve attention, too.

The company has to deliver on its operational plans, and it remains exposed to global aviation.

Investors should also ask how much optimism is already built into the share price.

ABB (ABBNY): Supplying the Electrification Boom

ABB makes equipment and systems that help utilities, manufacturers, data centers, and other customers manage electricity and industrial processes.

Its businesses focus on electrification and automation, both of which matter as customers try to expand capacity and make better use of available power.

There is real investment behind the theme.

ABB has announced a $200 million investment in European medium-voltage manufacturing capacity to support grid modernization and rising electricity demand.

That does not tell us whether the shares are cheap, but it does show the company is preparing to meet a practical need.

Electricity demand can grow for many reasons.

A manufacturer may expand production. A utility may upgrade aging equipment. A data center may require additional power and better controls.

ABB supplies products and systems that help customers address those needs.

That makes the company worth researching for investors who want exposure to power infrastructure without tying the whole idea to one utility or one source of energy.

The key is to see whether the growth in demand translates into attractive returns for shareholders.

A strong industry outlook is useful.

Profitable growth at a reasonable purchase price is what we are after.

Korea: Will Corporate Reform Reach Shareholders?

KKR sees Korea’s corporate reform story gaining traction.

Investors are watching proposals that could require boards to assess unsolicited takeover offers in the interests of all shareholders.

The bigger question is whether better governance and capital allocation will follow.

That could take time.

Passing a law is one thing.

Enforcing it and changing how companies behave is another.

For this issue, I am looking at two Korean financial groups as liquid ways to follow the reform theme.

Neither is a pure reform play.

Their results will still depend on lending, credit quality, and the decisions management makes with the company’s capital.

KB Financial Group (KB): A Broad Bet on Korean Finance

KB Financial is a holding company with businesses in banking, securities, insurance, and other financial services.

Its range of subsidiaries gives investors exposure to several parts of Korea’s financial system through one U.S.-traded ADR.

The question for shareholders is whether financial companies like KB can improve capital returns and communicate more clearly with investors as reforms progress.

That is a possibility, not a promise.

Better governance and capital allocation could help investors receive more of the value created by these businesses.

But we should not assume a change in the rules automatically produces a change in management behavior.

As with any bank, I would want to check the quality of its loans, the strength of its capital, and the price of the shares.

If the financial performance is sound and management becomes more shareholder-friendly, we may have an interesting combination.

We still need evidence of both.

Shinhan Financial Group (SHG): Another Way to Follow the Reform Story

Shinhan is another Korean financial holding company, with businesses in banking, securities, insurance, cards, and asset management.

Its range of businesses gives it several sources of earnings, while leaving it tied to the health of the Korean economy and financial system.

Shinhan belongs on the reform watchlist because better governance and more thoughtful capital allocation could benefit shareholders over time.

Financial companies have choices about how they use the capital they generate.

Those decisions can have a meaningful effect on shareholder returns.

The question is whether Korea’s reform efforts will encourage better decisions and whether Shinhan’s management follows through.

We should judge the company on what it does, not what reform might eventually make possible.

That means examining earnings, credit quality, capital strength, shareholder distributions, and valuation before deciding whether the opportunity is attractive.

The Shortlist: Eight Companies Worth Watching

This week’s candidates give us three different ways to follow the broader investment cycle.

Japan’s semiconductor supply chain:

• Tokyo Electron (TOELY) — Semiconductor manufacturing equipment
• Advantest (ATEYY) — Semiconductor testing equipment
• Shin-Etsu Chemical (SHECY) — Silicon wafers and specialized semiconductor materials

Europe’s defense and power investment:

• BAE Systems (BAESY) — Defense, aerospace, and security systems
• Rolls-Royce (RYCEY) — Aerospace, defense, and power systems
• ABB (ABBNY) — Electrification and industrial automation

Korea’s corporate reform opportunity:

• KB Financial Group (KB) — Banking and diversified financial services
• Shinhan Financial Group (SHG) — Banking, insurance, and financial services

KKR gives us a useful map of where capital may flow.

We can invest in public companies that supply the equipment, materials, and systems needed to support that spending.

But identifying the direction of investment is only the beginning.

The next step is the work we always do: check whether earnings are growing, the balance sheet can handle a tougher rate environment, the valuation leaves room for error, and the share price trend supports the thesis.

For the U.S.-traded ADRs, we also need to pay attention to liquidity and trading spreads. A foreign company can be an attractive investment while its U.S. shares require more care when entering or exiting a position.

The investment cycle may be broader and more durable than many investors expect.

Japan supplies critical parts of the semiconductor industry. Europe is spending to strengthen defense and electricity infrastructure. Korea is working toward changes that could improve how companies treat shareholders.

These are different opportunities, but they share an important characteristic.

They are tied to businesses, equipment, and capital investment rather than relying entirely on the market’s enthusiasm for the next big story.

That is where I want to spend my research time.

We still have to find the right companies at the right prices.

These eight give us a focused place to start.