At GAM Investments’ latest Equities Meeting, held on 27 April, our managers commented on earnings season in Europe and their outlook as many countries emerge from lockdown.
Niall Gallagher – European Equities
We are currently part way through earnings season in Europe and results have been outstanding to date. Companies such as LVMH, Nestle, ASML and Volvo, among others, have all released earnings results / trading statements significantly ahead of expectations on the back of strong revenues and margin gains. Since mid-March, defensive stocks have seen improved performance which is somewhat surprising given the extent of the economic upswing we think will occur. However, we believe markets will revert to being more cyclically driven in due course and expect to see more earnings strength going forward. We favour select semiconductor, automotive and luxury names. Oil stocks also appear attractive and select European energy names could become significantly cash generative if current crude prices stay within a USD 60-70 per barrel range. Overall, we remain constructive on the asset class.
Mark Hawtin – Technology Equities
Over the last few weeks we have seen a counter-rotation within the general move to a recovery and to cyclicals. Growth versus value remains circa 18% in favour of value year-to-date (YTD), but over the last month has moved circa 7% towards growth. We believe we are now starting to move into a post-Covid environment, the evidence being that working from home names have performed poorly over the last month with stocks such as Peloton and Netflix down YTD. Chinese internet names have also performed poorly, mostly due to regulatory concerns but also the Archegos Capital Management liquidation. From a fundamental perspective, we believe there are some strong upside opportunities in growth internet names in China, with some names growing their earnings by circa 30% year-on-year and trading on over 10 times price-to-earnings.
In technology equities, value names have performed well over the last few months. However, value-orientated names are getting closer to representing full value, which in our opinion suggests that a balance between growth and value is sensible in the current environment. We continue to believe physical data storage is a perpetual necessity amid Digital 4.0 and with over 90% of cloud storage on hard disk drives (HDD), this does not look likely to change anytime soon. This has meant HDD producers, such as Seagate Technology, have performed extremely well YTD. On top of this, anti-virus protection businesses like McAfee have reaped the benefits of the ever-growing digital world.
The information in this document is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained in this document may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information. Past performance is no indicator of current or future trends. The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice. Reference to a security is not a recommendation to buy or sell that security. The securities listed were selected from the universe of securities covered by the portfolio managers to assist the reader in better understanding the themes presented. The securities included are not necessarily held by any portfolio or represent any recommendations by the portfolio managers.