The concern of the month is that the United States is heading for a recession, but several fund managers at this week’s Morningstar Investment Conference said they do not expect a serious recession. They are starting to hunt for bargaining between hard-hit technology sector and industrial companies.
Kate Moore, Head of Thematic Strategy
The Global Allocation Team, in a panel discussion in Chicago, said that the corporate balance sheet and behavior so far do not suggest a significant decline in economic activity. T. Rowe Price Capital Appreciation Manager David Giroux is also not too worried about a severe recession, but says that further declines are possible for technology companies that are selling at higher valuations without too much profit potential in the near future. This stock is still expensive, he said.
Giroux is already finding opportunities in other pockets of technology that have also been beaten, but with more interesting fundamentals and strong cash flow, including those that can expand revenue three or four times faster than the market but are trading lower than the market. He includes such names in listed companies
(AMZN), for example, its cloud business, Amazon is trading for the evaluation of web services, giving investors its huge retail and advertising business for free, he said.
Despite the recession, Giroux says those risks have already been reflected in selected semiconductor stocks, industry aggregates and finance as they have fallen 30% or more from their highs.
Both semiconductor manufacturers and industrial conglomerates are often in a better position to raise prices, which makes them an attractive hedge against inflation, he said.
(WCN.Canada) is a name he has listed as a winner in terms of price power.
BlackRock’s Moore also sees pockets of opportunity in technology, especially software. He favors companies whose valuation is 40% lower than the maximum but generates plenty of free cash flow.
Not enough attention is being paid to sub-sectors of technology like cloud ecosystem-cloud-computing software companies, but cloud computing as well as cybersecurity software are being advised, he said. These two categories are areas where key technology executives would “quit their jobs instead of spending” rather than cut costs in response to high inflation.
The attitude of the international directors was a little dark. Sammy Simnegar, manager of Fidelity International Capital Appreciation, said the prospect of a softening for the US economy was diminishing. US equities are a proxy for the percentage-width of trading above their 20-day moving average, or how widely the market supports – 29%, he said.
“Narrow markets generally predict an economic downturn,” he said.
Another concern is the U.S. real estate market, with the average home price in the U.S. rising from $ 275,000 in 2019 to $ 375,000 in 2022, and even the mortgage rate rising from 3% to 5%. Simnegar sees a potential bubble – one reason, he said Baron’sHe has sold his U.S. housing-related stock.
More interesting are the steady farmers like lately
(NOVO.B.Denmark) and Sika (SIKA.Switzerland) whose price-to-earnings ratios have dropped to more attractive highs since the mid-30s, Simnegar said.
Although Moore sees opportunities for high-quality companies to transact at some level of their cheapness, he says the highly negative attitude, coupled with geopolitical and economic uncertainties, has kept BlackRock’s $ 21.6 billion Global Allocation Fund cash allocation comparatively more than a quarter.
“Sentiment is bombing right now,” Moore said. “Normally, you want to lean, but keep a lot of cash [in now]-We can be stuck in a trading range. I’m not bored, but I’m not in a hurry. ”
Write Reshma Kapadia at [email protected]