Football squads and equity portfolios both need attackers and defenders – high growth, high risk forwards who should score goals, combined with companies or players that hopefully offer some stability and prevent you conceding too many losses at the other end.
You might feel that the entire transfer market is quite inflated at the moment, so I would remind investors at all times to keep within the ‘Football Financial Fair Play’ regulations, which stipulate that you do not spend more than you earn and threaten your long-term survival.
The Goal Keeper: Solid and strong, nothing getting past this one
Chubb: Outstanding value at approximately half the market multiple, this insurance company offers stability, longevity and now has the backing of Warren Buffett and Berkshire Hathaway. The change in the world’s climate has arguably changed the dynamics for property/casualty insurance forever and whilst we will all pay more in premiums, companies such as Chubb should continue to benefit.
Defence: Playing four at the back
Consumer staples make good defenders, while fullbacks in the energy and retail sectors can get up the pitch when the economy is flowing forward.
Hershey: Shares in the 130-year-old iconic chocolate company have fallen 24% over the past year due to the impact of cocoa prices skyrocketing to an all-time high in April 2024. But from this point, I would bet that the commodity price goes down and as it does, Hershey’s earnings and stock will recover.
Kenvue: This company is a spin-out from healthcare giant Johnson & Johnson and now owns several consumer brands we all know and love, such as Listerine and Neutrogena. The shares have fallen in their first few months of trading ahead of the sale of J&J's remaining 9% holding but with this transaction now completed, from here we have good value for steady, predictable GDP-level growth.
Cheniere Energy: A leading player in liquified natural gas exports from the US, whose business and share price benefitted hugely from the disruption to energy prices in 2022 as a result of Russia’s invasion of Ukraine. Now, we have come full circle with a politically motivated pause on development announced by US president Joe Biden in January 2024 which has hurt the stock. Trading at under 8x last year’s earnings, any reversion to the mean or an election victory for Donald Trump should see it perform well over the next year or so.
Walmart: Whilst Amazon gets all the attention, the world’s largest retailer is quietly improving all the time, turning its stores into fulfilment centres so that its online business is outgrowing its major competitor – by 21% in the most recent report. A sleeping beneficiary of the deployment of artificial intelligence (AI) over time, this should be a core holding and is my team captain.
Midfielders: They can defend on valuation and join the attack with growth
Knife River: Smaller companies such as Knife River have dramatically lagged their larger brethren during this period of higher interest rates and tech obsession. Knife River is a construction materials and aggregates company, which is likely to see an uptick in its business as all this well-publicised reshoring and grid transformation money gets put to work. You do need to actually build all these data centres and the power plants to run them, before you can enjoy all this AI stuff!
Amgen: This biopharma giant is on a mere 15x price-to-earnings ratio, based on the growth expected from the existing portfolio. But it also has a product for the GLP-1 obesity and diabetes market in trial currently. Based on early results, Amgen has a reasonable shot of disrupting the two leaders (Eli Lilly and Novo Nordisk) with a product that works just as well but will be much cheaper and easier for patients to take, as it only needs a monthly injection rather than the current weekly treatment required by alternatives.
Covenant Logistics: A small niche player in transport, partly a play on a recovery in the truckload cycle, this company also operates in two specialty and less-commoditised businesses: it takes live chickens and pigs to market and transports weapons and systems for the military. You can imagine the specialist equipment required for the former and security clearance for the latter to see that this business is therefore more predictable and profitable.
Attackers: High risk, they are on the pitch to score goals
Seagate: The world leader in the commodity business of hard disk drives. Is that exciting? Yes, when there is a new product cycle starting and the market has yet to fully appreciate it. It is called heat assisted magnetic recording (HAMR) and I believe Seagate has a lead over their competition. If correct, it should gain share with its customers, who are all the giant cloud companies, as they start to deploy this new storage disk from next year.
Qualcomm: My own Harry Kane. Qualcomm has moved a lot this year already, despite losing business to China’s Huawei. Momentum should stay with Qualcomm, if you believe that an AI-related upgrade is coming to mobile phones. Its chips go into both Android and Apple, but while the iPhone maker would like to get rid of them it clearly cannot (because Qualcomm’s technology is superior to anything Apple has in-house) and now, for the first time, its Snapdragon semiconductor is going into the latest PCs announced by Microsoft.
Knight Swift Transportation: Overcapacity of trailers, under-supply of drivers and over-inventory at retail stores has led to a collapse in the earnings of the leading truckload carrier in the US. It has reached the point where pricing is at or below breakeven for many routes, so companies are just starting to say no to business. It is called a cycle and the time to buy is when it looks horrible but before the turn. I expect earnings to trough within six months and then triple off the bottom over the following year to 18 months. An interest rate cut will goose the stock, but usually by then you will be too late to buy.
Julian Wheeler, is a partner and US equity specialist at Shard Capital. The views expressed above should not be taken as investment advice.