Rotation

Read recent FT headlines: ‘Fomo feeling’ is sending Indian investors into the stock market; Apple’s value ‘vaults over entire US index of small cap stocks’; and, perhaps, the shiniest of all suggesting that ‘This US stock bubble could rank among the biggest in history.’ And all this on one page, below the lead piece on SoftBank gobbling up options. Even in an age when headlines are cast to catch attention, it’s enough to loosen the tie. More so as the summer holidays end and the meat of year-end trading is served. And served alongside a potentially explosive US election. What is lost in the noise and headline multiples, is that away from the fiery headlines there is a huge opportunity in US stocks. Not in the gaudy multiples of a Tesla or an Apple, but in the belly of the S&P 500. There is a danger for those thinking of taking profits on a decade long binge in growth stocks that they need to stomach a plate of pure out and out value. Some early cyclical exposure to align with the vaccine/unprecedented stimulus narrative; like industrials. And yet those who follow the Rockwell Automations know that many classic industrial cyclicals are expensive. And at a time when many other additional value plays, such as department stores, are forever impaired. A busted flush. Any potential trade out of ‘growth’ then, needs to be more nuanced, more selective; and away from the classic rotation playbook. And there is a trade to be had: not in a book of high-beta, low-quality, indebted stock, not when there is such a tremendous valuation opportunity to be found in sectors such as medical technology; for long highly rated but one that has latterly been caught in the storm of Covid. Sift the market further and it is possible to find many other quality operations on fire-sale valuations, where current multiples betray the strength of underlying company fundamentals; from med-tech to payments, to logistics and, for the brave, travel and leisure. The opportunity to play any rotation as economies heal is significant. And it need not involve getting the hands grubby.