"Equities"

Are earnings estimates too high? It’s a question being repeatedly asked, as the market speculates about the economic outlook. But perhaps the first question should be: are historic earnings too high?

It isn’t uncommon for management teams to systemically overstate their company’s profitability and skew the starting point for evaluating a company’s outlook. In recent years, short-term narratives have often trumped financial reality.

The current market sell-off has many market participants running for cover and waiting till the “uncertainty clears.” Issues concerning the market are well-known – central bank tightening, high inflation, the Ukraine conflict, supply chain shortages and increasing concerns of a recession in 2023.

And in current markets, I am reminded of the timeless words of Benjamin Graham (the father of security analysis and Warren Buffet’s mentor) who made the clear distinction between investment and speculation.

Portfolio Manager, Adam Chandler, from Claremont Global, one of Australia’s best performing international funds(1) , discusses opportunities in the current market, which companies they’ve been buying recently, how the fund makes investment decisions and how they think about risk.

2022 has seen a marked shift from “growth” to “value.” This has seen a resurgence in both bank and oil stocks. The former is expected to see an improvement in profitability, as interest rates rise with tighter monetary policy, whilst the latter are expected to benefit from higher oil prices ― more recently accelerated by the situation in Ukraine.

As global fund managers, one of the most important areas of focus for many of the companies we research is around talent acquisition and retention.

With the latest US CPI reading over 5%, we have been receiving a number of questions from investors about what this means for the future composition of our portfolio. Well, the simple answer is not that much ― and here’s why.

‍The difficulty with economic forecasts

‍As regular readers of our articles will know, we believe that accurate and consistent economic forecasts are exceptionally difficult, and it is even more difficult to successfully construct a portfolio to express such a view.

When thinking about COVID winners, a 70-year-old US-centric payroll solutions company is unlikely to be top of mind. However, complex requirements for stimulus applications through the pandemic ― combined with the ability to develop solutions to service these changes ― has entrenched NASDAQ-listed ADP with its client base more than ever.

We see ADP as an attractive quality compounder with a 45-year track record of consecutive dividend increases and in this article cover some of the many reasons why ADP has made it into our 15-stock portfolio.

By the measure of whether companies “beat” estimates, the most recent U.S. reporting season was outstanding. At our last count, 79 per cent of S&P500 companies had exceeded consensus estimates.

With the S&P500 at record highs, easy monetary conditions, another fiscal stimulus package and reopening ahead, perhaps that’s all equity investors need to know.

Management team changes can be typically disruptive for companies, often because it may further compound the already challenging position that led to the original need for change in the first place.

When one of the companies in our investment universe undergoes a change, we prefer to take a conservative approach and wait on the sidelines for compelling evidence that the new management team is truly a force for good.

Agilent Technologies is a life sciences company that provide a range of analytical instruments involved primarily in quality control and assurance of the lab. Its expertise largely sits in the highly specialised field of liquid/gas chromatography and mass spectrometry instruments. This underpins the company's comprehensive and growing services, consumables, and informatics piece.