Adrian Martuccio
Global equities boutique manager Bell Asset Management (BAM) believes the drawdown in the United States over the last six months will ultimately provide a favourable environment for active stock pickers with good buying opportunities likely to emerge.
Returning from a trip to the US, Adrian Martuccio, BAM Portfolio Manager, , said while most US companies were more sanguine than usual, there were also many that continue to be enthusiastic.
“A lot of the companies we spoke to said margin expectations across the market are still too high so consensus forecasts need to come down. This is likely to take another couple of quarters.
“Stock prices have factored a lot of this in, but it will be hard for companies to rally convincingly in the face of downgrades.
“Companies in our portfolios such as Jack Henry, Honeywell, ICON and Ritchie Brothers continue to be optimistic as they have robust balance sheets, sustainable franchises and are well positioned to weather a high inflationary environment,” Mr Martuccio said.
Inflation is likely to remain a key issue as the full impact of employee shortages as well as elevated logistics and input cost inflation is yet to be seen in company numbers and balance sheets.
“Input cost inflation only started in March and April of this year so we believe the full margin effect is unlikely to be seen until closer to the end of this year,” Mr Martuccio noted.
Tech space facing challenges
“Funding is definitely drying up in the software and biotech space which has flowed through to valuations of listed companies, but private companies certainly still have high expectations.
“It’s likely this will reduce once these companies do another funding round or when a venture capitalist wants to exit,” Mr Martuccio said.
He added that it is likely mergers and acquisitions will increase off the back of falling listed prices and the private market flagging.
“We’re likely to see an increase in M & A’s but it will really have to be the right technologies – the equation of buy versus build versus time to market will ring true.
“Job losses at tech start-ups have also accelerated as they try to stop bleeding cash. This has resulted in larger, more established tech companies becoming more attractive to key talent.
Post pandemic demand
“Pandemic pull-forward demand remains the biggest uncertainty, especially if the consumer environment is more challenging.
“This doesn’t just apply to consumer companies but software as well,” he said.
He added that ‘the company pivot’ is still ongoing with businesses looking to broaden their product reach and addressable markets but it’s unlikely to replicate previous growth – a risk for big business as well.
“When we look at companies like BOX and Zoom they’re now in a position where they have to really focus on corporate customers because the consumer market has faded rapidly” he said.
