Jamie Dimon, chairman and CEO of JPMorgan Chase & Co.
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JPMorgan, Texas Instruments and Air Liquide are among the “best in class” cyclical businesses which are “on sale” for investors searching for value, according to Latitude Investment Management CEO Freddie Lait.
Latitude Investment Management expects corporate earnings to fall around 35% for 2020 and in 2021 to edge up but remain below 2019 levels. However, Lait believes aggregated earnings per share in his flagship Latitude Horizon Fund will be higher in 2021 than 2019.
He also maintains that the portfolio remains inexpensive at an average valuation multiple of 15.5x P/E (price-to-earnings ratio) in 2021, a measure of the companies’ current share price against their expected earnings per share.
“The investment style that has been working for the last decade has continued to work for the last few months and that is buying quality growth stocks, defensive growth stocks,” he told CNBC’s “Squawk Box Europe” on Tuesday, highlighting the consistent outperformance of technology and health care stocks.
The Latitude Horizon Fund owns Google and Visa, but Lait suggested that investors can still find “best in class quality cyclical businesses” which he claimed the market is broadly ignoring. Cyclical businesses are those whose success is largely tied to economic cycles.
“JPMorgan is a highly cyclical business, but I believe a best in class quality business,” he said, adding that semiconductor manufacturer Texas Instruments and industrial gases company Air Liquide also fit this profile.
“These businesses are very high quality even if they are tied to economic cycles, and they are on sale at the moment, so you can buy these market leaders and merge them in a portfolio effect with some of the technology and health care market leaders that everybody else owns,” he explained.
“You end up with an aggregate P/E that is substantially lower than the market, but with similar sort of growth rates and a great balance to the portfolio if interest rates do move or if you see a value-cyclical rotation or anything like that, which eases your pressure in terms of taking single bets on the market.”