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Monday, August 8, 2022
Today’s newsletter is by Brian Sozzi, an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
I stunned my co-anchor Julie Hyman on Friday when I expressed optimism about the path forward for movie theater chain AMC late last week.
It’s not that AMC is going to be a rip-roaring growth stock over the next 25 years or that it has done everything right the past two years.
Rather, there is now a solid theme behind a company such as AMC that could drive better fundamentals during the next 12-18 months: Specifically, people are increasingly eschewing Netflix and Roku (as seen in each’s poor quality second quarters and outlooks) and are returning to theaters to watch some very good movies.
Against the backdrop of that theme, AMC is likely to build on its encouraging second quarter for attendance, sales, and profits — which could be supportive of the stock price. AMC CEO Adam Aron will be on Yahoo Finance Live on Monday morning, and we obviously have lots to chat about.
But more generally, it’s worth it for investors to consider a few themes of their own as markets eye up the final few months of the year.
Thematic investing is once again being dusted off by Wall Street as a key differentiator, as most investors believe they have sense of how the Federal Reserve and economic concerns play into the outlook.
“The market has been deservedly focused on a mix of macro risks and influences this year,” Citi strategist Scott Chronert wrote in a new note to client. “As we move closer to recession resolution, the longer-term growth profiles associated with many themes may provide some performance edge, particularly on the heels of year-to-date valuation corrections. A new trading environment on the other side of current concerns may mean stock-specific valuation catalysts may be more closely tied to fundamentals give a lower expected macro growth profile and lesser central bank accommodation.”
Chronert outlined six compelling investment themes: Automation/Robotics, Internet Driven Business Models, Artificial Intelligence, Emerging Market Consumer, Top Brands, and Net Zero.
Specific stocks highlighted in the note included:
You may notice an abundance of tech stocks on this list and be wondering why, given the notion that “tech stocks can’t do well in a rising interest rate environment.” But this group of stocks not only operate in industries that cover the bulk of these themes, but have also had superior sales/earnings growth the past five years, a reasonable (current) valuation, and improving investor sentiment.
To which I will say three things.
First, thematic investing is a relatively long-term venture — that is, the idea here is not to buy one of these stocks with an eye to flipping it by the close of trading.
Secondly, Chronert’s work highlights how thematic investing tends to work in an array of economic and rate backdrops. The key takeaway: thematic investing tends to outperform an equal-weighted basket for the S&P 500.
And lastly, is it really etched in stone that tech stocks always suck wind as rates rise?
“Tech stocks are not as tied to rates as a lot of investors think,” John Hancock co-chief investment strategist Emily Roland said on Yahoo Finance Live on Friday.
“We have looked at the data and the relationship is not actually that strong. We have seen it in recent times be correlated, but what happens in an economic growth slowdown is you want to own companies that have more durable profitability, have more earnings stability and have more cash on their balance sheets to deploy. You are going to find that in technology companies.”
Table of Contents
What to Watch Today
Barrick (GOLD), BioNTech (BNTX), Dominion Energy (D), Elanco Animal Health (ELAN), Energizer (ENR), Novavax (NVAX), Palantir Technologies (PLTR), Radware (RDRW), Tyson Foods (TSN)
3D Systems (DDD), ACADIA Pharmaceuticals (ACAD), Allbirds (BIRD), American International Group (AIG), Groupon (GRPN), Lemonade (LMND), Marriott Vacations (VAC), News Corp (NWSA), SmileDirectClub (SDC), Switch (SWCH), Take-Two Interactive Software (TTWO), Tanger Factory Outlet Centers (SKT), Upstart (UPST), Vroom (VRM)
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