JPMorgan, Texas Instruments and Air Liquide are some of the “best in class” cyclical businesses “on sale” for investors, according to a top strategist.
Freddie Lait, chief executive officer of Latitude Investment Management, said that investors who are looking for value should consider JPMorgan, Texas Instruments and Air Liquide.
Latitude Investment Management predicts corporate earnings to drop around 35% for 2020 and in 2021 to rise but still below 2019 levels. However, Lait notes accumulated earnings per share in his flagship Latitude Horizon Fund will be bigger in 2021 than 2019.
He also stressed that the portfolio is still affordable at an average valuation multiple of 15.5x P/E (price-to-earnings ratio) in 2021. This is the comparison of the companies’ current share price against their expected earnings per share.
“The investment style that has been working for the last decade has continued to work for the last few months and that is buying quality growth stocks, defensive growth stocks,” he said during an interview with CNBC’s “Squawk Box Europe” on Tuesday. He mentioned the constant outperformance of technology and health care stocks.
The Latitude Horizon Fund manages Google and Visa, but Lait believes investors can identify the “best in class quality cyclical businesses” which he thinks the market is widely dismissing. Cyclical businesses are those whose success depends on economic cycles.
“JPMorgan is a highly cyclical business, but I believe a best in class quality business,” he said, adding that semiconductor manufacturer Texas Instruments and industrial gases company Air Liquide also fit this profile.
“These businesses are very high quality even if they are tied to economic cycles, and they are on sale at the moment, so you can buy these market leaders and merge them in a portfolio effect with some of the technology and health care market leaders that everybody else owns,” he explained.
“You end up with an aggregate P/E that is substantially lower than the market, but with similar sort of growth rates and a great balance to the portfolio if interest rates do move or if you see a value-cyclical rotation or anything like that, which eases your pressure in terms of taking single bets on the market.”
Restarting the economy
According to a memo from JPMorgan Chase CEO Jamie Dimon in May 2020, the coronavirus crisis can lead to more economic opportunities.
Dimon said the coronavirus crisis could be an instrument that can help restart an economy that offers opportunities for more people.
The memo, released ahead of JPMorgan Chase‘s annual shareholder meeting, is part of the New York-based lender’s response to the coronavirus pandemic.
Dimon discussed the efforts his company has made to support customers and employees since the crisis started two months ago. He also mentioned employees returning to to work sites.
“It is my fervent hope that we use this crisis as a catalyst to rebuild an economy that creates and sustains opportunity for dramatically more people, especially those who have been left behind for too long,” said the JPMorgan Chase executive regarding how the country can learn from the coronavirus crisis.
