One of the smarter investors in the market believes you’re off-target.
He describes the S&P 500 SPX, -1.10%, Dow Jones Industrial Average DJIA, -0.96% and Nasdaq COMP, -1.12% strength since mid-June as a “revenge rally.” This means people were buying the types of stocks that worked in 2019 through 2021, like profitless tech companies and the FAANGs.“People feel like they want to tiptoe into risk again,” he says. “They are going back to the playbook of a few years ago. I would believe the rally is sustainable if the leadership looked different.
Not all bleak The good news is any recession will not be severe, White predicts. That’s because there are no major imbalances in the economy — like the excessive leverage that contributed to the 2008-2009 financial crisis. 1. Quality companies Visa: The profit margins at this asset-light credit card company are so high, that even if revenue growth slows a bit, that won’t erode margins or earnings too much. Visa V, -0.47% is “quality,” in part, because it benefits from being in a duopoly with Mastercard MA, -0.47%, and the tailwind of ongoing migration away from the use of cash.
2. Companies where the consensus opinion misses the big potential Here he cites the pharma giant Eli Lilly LLY, -1.00%. Lilly has a rich pipeline because it spends so much on research and development — 20% of sales. That is more than the mid-teens average for the industry, notes Morningstar Direct analyst Damien Conover.
Lilly also has an Alzheimer’s drug in late-stage development, called donanemab. This could be big if it works out, since Alzheimer’s therapies remain elusive. Phase III trial results are due out next year. Inflation beaters White singles out three companies that could benefit directly from elevated inflation, which he thinks will be with us for a while.
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