Investors Pivot to HALO: McDonald's, Exxon and Deere Lead

The HALO Trade: Why Heavy Assets Are Back in Favor

After three years of bidding up anything with an AI label, U.S. investors are shifting their attention to businesses that look hard to disrupt. Think factory owners, fast-food operators, energy giants, and machinery makers. This rotation has a name: HALO-heavy assets, low obsolescence.

The logic is simple. If software eats the world, what's left that can't be eaten? Assets with long replacement cycles, real cash flows, and pricing power tied to physical demand. That's why names like McDonald's (MCD), Exxon Mobil (XOM), and Deere (DE) look steady while software and certain advisory-heavy models get discounted for disruption risk.

What's Driving the HALO Trade

• AI obsolescence risk is getting priced. Software margins are great-until new models compress them. Sectors exposed to AI cannibalization face a higher cost of capital.
• Cash now beats promises later. With rates still not "cheap," investors reward near-term free cash flow and dividend reliability over distant growth stories.
• Physical throughput still matters. The AI buildout boosts demand for energy, materials, logistics, and equipment. Data centers don't run on optimism; they run on power and hardware. IEA data points to rising electricity needs from data centers.
• Replacement cycles are slow. You can't rewrite a refinery or a rail network with a new model update. Long-lived assets create durability that software envy can't replicate.
• Valuation spreads widened. HALO names often traded at discounts while AI leaders ran. A modest re-rating, plus yield, can outpace fragile growth stories.

Who Benefits, Who Lags

• Likely beneficiaries: quick-service restaurants, integrated energy, midstream/pipelines, miners and aggregates, industrial machinery, farm equipment, rails, waste management, industrial REITs.
• Left on the bench: business models with high exposure to AI disintermediation-select software, IT services, and advice-driven fee businesses without clear IP moats.

How to Underwrite HALO Like a Pro

Don't buy the label. Underwrite the cash engine and the moat.

• Free cash flow yield: Favor names with consistent FCF and disciplined capital returns. Know what you're actually buying. If you need a refresher on the metric, see FCF yield.
• ROCE vs. WACC: Prioritize firms consistently earning above their cost of capital through the cycle.
• Asset life and replacement cost: Longer-life, high replacement-cost assets raise barriers to entry.
• Pricing power and contracts: Look for inflation pass-throughs, regulated returns, or take-or-pay structures that stabilize cash flows.
• Balance sheet: Net debt/EBITDA must fit the commodity or cycle risk. Avoid balance sheets that force equity issuance at the bottom.
• Operational efficiency: Companies that use automation to boost margins (not as a press release, but in throughput and unit cost) will widen the gap.

Tactical Portfolio Moves

• Barbell it. Keep your proven AI compounders, but add HALO ballast that throws off yield and resists obsolescence.
• Favor real cash + optionality. Seek names with buyback capacity, reliable dividends, and embedded growth from AI-related demand (power, cooling, logistics, equipment).
• Use factor awareness. HALO exposure often leans value/dividend/quality. Know how that skews your factor risk and your rate sensitivity.
• Exploit event windows. Add on commodity scares, regulatory overhangs, or cyclical dips-then let cash returns compound.
• Hedge concentration risk. If your book is long duration growth, options or selective HALO can smooth drawdowns without killing upside.

Signals the Trade Still Works

• Data center and AI infra capex rising. Keeps energy, materials, and equipment demand supported.
• Persistent margin compression in disrupted software niches. Confirms obsolescence risk is real, not theoretical.
• Rates above "easy money." Supports cash-now businesses over promises-later narratives.
• Stable or rising dividends/buybacks. Management confidence shows up in capital returns first.

Red Flags and Exit Cues

• Capex bloat without cash conversion. If big projects don't translate to FCF, the HALO story breaks.
• Policy shocks. Aggressive environmental rules or windfall taxes can alter returns on heavy assets.
• Commodity downcycles. You're paid to endure volatility-but balance sheets must be ready for it.
• AI productivity diffusion. If software deflation reliably boosts everyone's margins, obsolescence risk premia narrow and spreads compress.

A Practical Screening Checklist

• FCF yield > market average; 3-5 year FCF growth visibility
• ROCE consistently above WACC, even mid-cycle
• Net debt/EBITDA aligned to cycle risk; staggered maturities
• Dividend coverage > 1.5x; buybacks opportunistic, not reflexive
• Pricing power via contracts, regulation, or brand
• Asset life > 10 years; high replacement cost; clear permits or concessions
• Operating KPIs: utilization, reserve replacement, backlog, same-store sales, throughput

Use AI to Strengthen Your HALO Thesis

Ironically, AI can make you better at the HALO trade: faster model updates, better scenario analysis, sharper risk monitoring. If you're leading a finance team or running capital allocation, structure your AI approach so it directly improves underwriting and portfolio decisions.

• AI for Finance: practical resources on modeling, risk, and research workflows.
• AI Learning Path for CFOs: frameworks for forecasting, capex discipline, and ROI tracking.

Bottom Line

AI isn't just creating winners at the edge of software-it's lifting the core of the physical economy that supplies power, food, transport, and machines. The HALO trade is a bet that cash-rich, hard-to-displace assets will keep compounding while AI shakes out who survives on the digital side.

Underwrite cash. Respect the replacement cycle. Let tangible moats do the heavy lifting.