market themes

Fall 2019 Market Themes

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We believe potential investment gains live in the gap between the unfolding reality and consensus expectations. Often, this means finding undervalued companies in unpopular industries. The theory is, if the future turns out better than expected, values may rise. No guarantees, of course.

We look for promising investments by studying opportunities in detail, reading annual reports, SEC filings, analyst commentary, and doing our own arithmetic.

Although we look at individual companies, we often find themes in our list. Our current Buy List has certain points of emphasis.

Natural resources continue to attract us. Producers of copper may do well in the years and decades ahead, as solar and wind power and batteries combine in a new energy revolution. These things require copper for their manufacture. Companies that mine precious metals may do well in an environment of political and economic uncertainty.

Shares in biotech companies do not seem to reflect the potential for continuing dramatic strides in treatment and cure of disease. They sell at a discount to the market multiple; some offer dividend income.

The price of airline stocks have slipped, over fears of recession. We believe the current share prices more than adequately discount that possibility. And recessions are followed by recoveries (at least, they always have been).

Owning the largest company in a highly fragmented industry has sometimes been a good recipe for investors in the past. As industries consolidate, the bigger players often get bigger by acquisition of smaller companies. This may give them a growth rate in excess of the overall economy. We see opportunities in this concept.

We continue to be struck by the performance gap between international equity markets and the US, going back a decade. Overseas diversification makes increasing sense to us.

Our list includes other things as well, but each of these themes is well represented. We believe picking our spots, and paying attention to the fine points, is the right approach.

Clients, if you would like to talk about this or anything else, please email us or call.


Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.

All investing involves risk including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

The payment of dividends is not guaranteed. Companies may reduce or eliminate the payment of dividends at any given time.

Spring 2017 Market Themes

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We look for promising investments by studying opportunities in detail, reading annual reports, SEC filings, analyst commentary, and doing our own arithmetic. Potential gains live in the gap between the unfolding reality and consensus expectations. The outcome of this study and thought is a list of investments we would like to own.

Although we look at individual companies, we often find themes in our list. This makes sense when you consider that undervalued companies are often found in unpopular industries.

Last fall we wrote about three of our market themes. Biotechnology companies, the evolution of the automobile, and natural resources continue to figure into our thinking. Other themes have emerged.

Consolidation has fundamentally changed the dynamics of the airline industry. It used to be that fierce waves of competition caused price cutting, which led to poor financial results and even bankruptcies. But there are not twenty players, or even ten any more. Consolidation and liquidation has reduced the number of major competitors to four.

The four biggies compete with each other, but more gently. Each knows that lower growth ambitions and stable pricing may lead to greater profits than higher growth ambitions and lower prices. This idea of a pricing oligopoly seems to explain the behavior of the airlines, which are booking record profits. We believe the market has not awoken to the new dynamics, and undervalues the stocks. We may be wrong.

The European equity markets have had one problem after another for more than a decade. An index of major blue chip stocks, the Eurostoxx 50, is lower than it was ten years ago. Meanwhile in the US, major averages have doubled. Dividend yields and prices are more favorable “over there.” So we have begun to include European equity exposure in portfolios.

The Buy List of thirty-some holdings reflects these themes and other opportunities we believe to be attractive. There are no guarantees on any of them. We can tell you we are excited about the prospects. If you would like to discuss your holdings or situation in detail, please write or call.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.

Stock investing involves risk including loss of principal.

Value investments can perform differently from the market as a whole. They can remain undervalued by the market for long periods of time.

Because of their narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.