TOL - 28th Oct, 2022
Nick Griffin: Three top stocks for 2023's biggest megatrends
In financial markets, a lot can change in 12 months. If you want any proof of that, just take a look at the performance of growth/long-duration stocks here and abroad. As an example, take a look at the Wilshire Growth/Value correlation. A reading closer to 1 implies value has outperformed over your chosen time period. The next chart is the one-year correlation between US large-cap growth and value-oriented stocks.
So what has caused the environment to change? Is it too easy to say that it was all an "unwinding of free money" narrative?
In this brand new series of Expert Insights, Nick Griffin at Munro Partners sits down with me to discuss the outlook for growth stocks given the tumult of the last year. Plus, in proof that megatrends are worthy of their name, he will share two of his top themes to watch out for next year as well as one of his favourite stocks to profit from those trends.
Note: This interview was taped on Thursday, October 13th, 2022.
EDITED TRANSCRIPT
LW: How has the environment for global growth changed in the last year?
Nick Griffin: If you go back over the last 12 months, the big thing that changed very quickly over Christmas was that COVID-19 went away. So we sort of all went away for Christmas and everyone got COVID-19 and then COVID-19 was over. And within six months, we're all off trying to get on planes to Europe or a flight to Sydney and stay in expensive hotel rooms. And so, what happened very quickly over the turn of the year was it became very clear that central banks were a long way behind the curve and that they needed to raise rates quite quickly.
Secondly, that demand burst has caused inflation. What we've learned in the last 12 months is there's no such thing as transitory inflation. Inflation is inflation is inflation. And so, what that's meant is central banks have had to hike rates further to try and kill inflation.
So you're in this environment where interest rates are backing up very quickly, that's bad for asset prices. And secondly, interest rates are going to slow growth, and that's the bit we're going into now. This has been a very dramatic shift in a very short space of time, and it's really because the COVID-19 epidemic went away so quickly.
LW: Are you concerned or excited about what lies ahead?
Nick Griffin: If you take that backdrop, we've obviously seen a major repricing in assets, because interest rates have had to go up, and up a lot more than we thought. I think a lot more than most people thought, and a lot more than the central banks thought. So that's seen a major repricing in asset markets.
The bit that's still to come is the slowdown. Clearly, this is going to cause people to spend less money, or borrowing money is going to be harder. This is going to cause an economic slowdown. Also, you'll get a compounded effect on this economic slowdown because quite frankly, none of us can spend as much money next year as we spent this year. That's because we were all having such a good time coming out of COVID-19.
So we're going into an economic slowdown. It's probably going to be a pretty big one, and right now, for people like us and for the market generally, it's hard to know how deep the valley is. And you're sitting on the edge of it.
LW: Where are you investing for alpha in this environment?
Nick Griffin: In this environment, it's clearly a slowing growth environment, and a slowing growth environment is usually slowing earnings for most companies.
It is harder to find companies that are going to upgrade earnings or grow earnings in this environment. So from that point of view, we're probably running a bit more cash than usual, because there are just, quite frankly, not as many good ideas around.
Sooner or later, these stocks will get cheap enough, and they'll be cheap enough to buy the turn in the growth and that's definitely coming quite soon, but we're not there just yet.
In the meantime, the areas where we do see significant upgrades at the moment are really around decarbonisation and climate. We see a lot of upgrades in this area and we see a lot of companies that are trying to solve problems within the energy transition.
One good example here would be LNG. Europe is having a gas crisis, we know this. Most of that product has to come from LNG or gas from somewhere, and we think that LNG has to come from the US. So a company like that, one we've owned all year here is called Cheniere Energy (NYSE: LNG). It's the second-largest LNG provider in the US. It's quite simply taking advantage of the arbitrage of gas prices between Europe and the US, and expanding that extra cash to expand its LNG.
The second big area I would flag is the slowdown in healthcare. Unfortunately, it doesn't matter how bad things get, you normally look after your health. The one thing we've noticed in healthcare in the last couple of years is pharmaceutical companies are getting very successful at creating new drugs. We saw this with the COVID-19 vaccine, which was, which was done in record time.
There are big new drugs coming out to solve things like obesity and GLP-1s. Some people would be aware of GLP-1s, or Ozempic, these are drugs for type two diabetics that ultimately could be diagnosed to people who are at risk of being type two diabetics. This is a big upgrade area, and we're seeing other big drugs come around Alzheimer's [Disease].
Companies we like are Novo Nordisk in Denmark and Eli Lilly (NYSE: LLY) in the US. And both those companies are going to see upgrades as they roll out these drugs, and those upgrades should increase share price upside regardless of the economic environment. That's what we're looking for here at Munro.
Want to learn more?
Munro Partners is a global
growth equities manager. Munro invests alongside clients to benefit from some
of the key structural changes that are occurring in our world today. To find
out more, visit their website.
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My passion is equity research, portfolio construction, and investment education. There are some powerful processes that can help all investors identify great opportunities and outperform the market, and I want to bring them to life and share them...
Expertise
My passion is equity research, portfolio construction, and investment education. There are some powerful processes that can help all investors identify great opportunities and outperform the market, and I want to bring them to life and share them...
Expertise
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