Outside of the US market, there are opportunities in sectors such as consumer goods, healthcare, and information technology.
Over the past two years and two months, Elias Erickson has successfully managed the Ninety One International Franchise Fund (ZIFIX) fund, achieving positive results in various market conditions. Despite the changes that have occurred in the markets and economy since August 2021, its track record has remained constant, as has its investment strategy.
Its stock selection process is based on bottom-up analysis, carefully examining each possible entry to assess whether it is a high-quality company capable of growing in any economic environment.
First, Erickson ensures that a prospective investment is differentiated from its competitors. Try to identify measurable, lasting advantages a company has, whether it’s software code, patented technology, or global scale built over decades.
Once you determine whether a company is sufficiently differentiated from its competitors, evaluate its debt and capital intensity to understand how it might weather a period of economic downturn.
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But the best measure of a good company is cash flow, according to Erickson. Growth-oriented investors focus on whether the company is growing its revenue and user base, while value-oriented managers favor profit proxies such as earnings before interest and taxes, so his approach is different.
Secondary metrics that Erickson uses include internal rate of return (IRR) and enterprise value to earnings before interest and taxes (EBIT or EBITDA). It is crucial to confirm that a stock is priced correctly relative to how much money and earnings it will produce in the future to ensure that all the good news is not already priced in.
More often than not, US investors avoid international stocks entirely, as the dominant narrative is that the group is risky, due to their high exposure to geopolitical conflicts.
However, Erickson believes this is too broad a statement. Foreign stock indexes may have lagged the S&P 500 in recent years, but he pointed out that there are many great investment opportunities abroad that enhance returns while diversifying a portfolio.
Erickson identified four sectors where international stocks look particularly promising right now: consumer staples, healthcare, and information technology.
The portfolio manager said these sectors have quality characteristics, are not very capital intensive, and are not overly dependent on external financing or the economy. Companies in these parts of the market can create growth on their own and often enjoy predictable recurring revenue.
One stock Erickson particularly likes is luxury goods maker Hermes. This 186-year-old company has a vertically integrated supply chain, meaning it controls every aspect of its business. Furthermore, it is less vulnerable to recessions than its competitors.
Defensive parts of the market, such as consumer staples and healthcare, also tend to remain strong during downturns, as demand for their products and services usually does not decline. Erickson is particularly interested in pharmaceutical, medical device, and healthcare companies within the latter sector.
Erickson also highlighted a trio of companies in the technology sector or technology-related sectors.
Its largest holding is German software company SAP, which is making a bigger push into subscriptions with a multi-year upgrade cycle for its enterprise resource planning (ERP) products. He believes this decision will lead to stable sales for SAP for years to come.
Mastercard is Erickson’s second largest exposure, as although the company is based in New York, it generates about two-thirds of its revenue outside the United States. The credit card network has a large competitive barrier, Erickson pointed out, meaning it is protected from possible competitors. It will also benefit from the continued boom in digital payments.
Finally, semiconductor manufacturing giant TSMC remains in Erickson’s top 10, producing more than half of the world’s chips, including an astonishing 85% of high-performance semiconductors. An unsurpassable barrier and resilience to any economic conditions make TSMC a natural choice for its portfolio.
Original article published on Money.it Italy 2023-11-06 06:30:00. Original title: 4 titoli per un portafoglio azionario a prova di recessione
