Midsummer Musings This is the fourteenth in a series of independent research produced by the Murray Wealth Group Research Team. The purpose of this series is to provide insight into our portfolio construction and how our research shapes our investment decisions. We welcome any feedback or questions you may have on these monthly commentaries. This […]
On May 31, The Wall Street Journal broke the news of the opening of an investigation into four of the most prominent technology companies: Alphabet, Amazon, Apple, and Facebook. The action is bi-partisan supported and thus ‘big tech’ won’t be able to lean on its friends in Washington for sanctuary. We own positions in all four companies in our Global Growth Portfolio as we are attracted to the technology sector’s appealing fundamentals (secular growth, strong margins, low capex/high cash flow). As owners, we are keenly interested in gauging the likely outcome of each company’s investigation and determining the risks and opportunities available.
Aritzia is a Canadian women’s fashion retailer positioned at the upper end of the mass consumer market. The company has a strong footprint in Canada with 67 locations, and a growing presence in the United States with 25 locations located in both shopping centers and other urban shopping destinations. Aritzia designs and sells exclusive inhouse brands, including TNA, Wilfred, and Babaton, and carries select products of leading designers such as Adidas. The company enjoys high satisfaction amongst the coveted 20-40 year-old women’s demographic. It is positioned above larger fashion retailers like H&M and The Gap but well below European luxury designers in terms of price, brand perception and quality. We believe Aritzia is a best-in-class fashion retailer, with a long runway of growth in the United States, trading at a reasonable valuation.
The cruise industry presents an attractive opportunity for investors. With the perception of cruising having changed over the last date, the industry has been expanding into both new geographic and demographic markets globally. China represents a strong new growth market as its middle class emerges, and new onboard features/entertainment options are appealing to millennials and families as alternatives to destination resort vacations. As well, cruise lines are now able to better maximize capacity utilization as the ships can be relocated to high demand markets based on seasonality.
The Global Automotive sector is a complex web of original equipment manufacturers (OEMS for short; Ford, Nissan, Tesla), suppliers and of course, customers, mostly retail, but also including trucking companies, rental car services and other commercial vehicle applications. Tangled into the physical asset chain is the financial aspect of lease/financing transactions, which have their own set of complexities.
In late 2008 and into the first quarter of 2009, global stock markets suffered great losses when the U.S. housing bubble burst.
In early 2018, the rallying cry of Facebook’s opposition, a gang upset with a myriad of perceived abuses from fake news, election propaganda, bots (fake accounts that push an agenda, be it advertising or public opinion) and unauthorized use of user data, was pushed into the spotlight sparking fears that the public would abandon the service.
Globally, asset classes were mired with negative returns in 2018. Equity markets in developed economies performed well through September but a large correction in the fourth quarter of 2018, together with increased volatility, led to negative returns. Rising interest rates negatively affected credit instruments (although we saw a sharp decline in longer-term interest rates in December as expectations of future interest rate hikes decreased).
One of our key considerations when investing in a company is that it represents an enduring growth opportunity. We believe markets generally underestimate the length of time that a company can sustain a high level of growth. Commonly, growth companies exhibit declining P/E multiples as EPS grow faster than share prices.
We recently purchased shares of Airbus SE, the European aerospace company, based on our view that attractive airline fundamentals, a record backlog and improved manufacturing operations will translate into strong cash flow growth for the company.
In late March, we published a research piece on why we like the technology sector and remain overweight the sector in our Global Growth portfolio, specifically the quattro of companies; Facebook, Apple, Alphabet and Microsoft.
A major theme that we believe will provide great investment opportunities is the aging population in Western society and, with it, the rising demand for health services over the next decade. There are numerous ways to gain exposure to the healthcare sector from direct product producers (medical supply or drug companies), health insurers and pharmacies.
Evaluating high growth companies is challenging, given that traditional methods often yield astronomical valuations for companies generating negative cash flow, but the rewards can be quite compelling. Any slowdown in growth rates or corporate missteps can cause swift losses in investment value. Thus, it is imperative to look beyond just current financials and evaluate the […]
Our Global Equity Growth Fund has a high concentration in the technology sector, with Alphabet (6%), Facebook (5%), Microsoft (4%) and Apple (3%) being core holdings