Microsoft, opportunity in a consolidated technology at reasonable prices

The US is at full employment, the economy is growing, but it also has skyrocketing inflation and is facing the rate hike initiated by the FED. Why is it a good time to invest in the US?
victory tower. The question would be the other way around, why is it not a good time to invest in the US? In the end, the US is such a large economy that we could find interesting representatives in any market cycle. Betting against the USA is often complicated. There are some issues that could be extrapolated to any part of the world: inflation and growth. The latest revisions made by international organizations are downwards, but they have been adjusted more in Europe due to the proximity to the war in Ukraine. Regarding inflation, it is somewhat higher in the US but there is not much difference and it is expected to have seen a peak. Another advantage of the US economy is that monetary policy is usually more agile, it has no problem raising rates by 50 basis points and it is because the economy shows greater resistance. We have seen an example in the unemployment rate, which is at its lowest in the pandemic.

If we look at the sectors, where should we be in an environment of inflation and rising rates and falling bonds?
Victory Tower. At a time when rates are being raised and there is inflation, we have to see which sectors may be most affected, which are the ones with the most affected valuations. It has been wanted to compare the current situation with that of the 1970s, a year in which the benefits of the S&P 500 grew by 50% but the indices fell by almost 40% and where it fell the most were those with more demanding valuations. In fact the PER was adjusted from 24x to 7x. We should try those sectors with more demanding multiples and that can benefit in this context. We identify the banking sector as one of the direct beneficiaries of the rate hike and also, within the megatrends, those that have to do with geopolitics. We are heading towards a world that is organizing itself in blocks that will seek to guarantee their supplies. Infrastructures, raw materials or real assets are some of those that could benefit in this context.

Are there any companies on the radar within these sectors?
Xavier Weaver. We have identified new opportunities. One is the Canadian company Enbridge, which is dedicated to the management of oil and gas pipelines, although it is initiating important renewable energy projects. It is a monopoly because it manages most of the pipelines in North America in terms of crude oil transport and, as a substitute for Russian supply, it can shift production to North America. In that case, it is likely that crude oil production will continue to increase in the area and that is where this company is strong, since a large amount of oil will have to be transported from the fields, mainly in Alberta, to the export ports. This company is already strong in itself and this will favor it. It IS a company that has a sustainable dividend and we think that it is a good part of the portfolio.

Within the banking sector, there is value in JJPMorgan Chase mainly because of its size but also because of its diversification because it has exposure to both retail banking, commercial banking and investment banking. As for raw materials, which also benefit from the geopolitical component, a company that is well positioned for this world in blocks is Acerinox because it has factories in the US, Europe and Africa, so it is not so impacted by the conflict in Ukraine or has so much exposure to China. It is also a well-known company in the Spanish market.

The technology sector, when talking about the US, cannot be left aside. What would be the approach to this sector?
Xavier Weaver. The technology sector is the one that had the highest valuations and is the one that has suffered the most. There is still a readjustment path in the sector as there were many companies that did not even have profits but the expectations were excessive and they have corrected more than other more consolidated ones. We see that there is beginning to be an opportunity to enter the most consolidated companies that are having more reasonable valuations such as Microsoft, which, in addition to being consolidated, the business in the cloud is in full growth, will add value in the coming years and, although we would not recommend enter suddenly, you can go making partial purchases.
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As a European investor, is it important to take into account the strength of the dollar?
Xavier Weaver. Yes, it has a lot of influence because when we finally buy American companies we are buying something that is quoted in dollars and it will directly impact its valuation. But in the end, if the dollar depreciates, it usually benefits many US companies, especially on the export side, and this will be reflected in the valuation of the shares. That is why there is usually a natural hedge and what we lose with the depreciation of the dollar we can gain through stock prices and vice versa.

The dollar right now is at 1,038 dollars, the pair is at its lowest in the last two decades and this reflects that there is not so much appetite for risk, people take refuge more and there is not so much confidence in the Eurozone economy or the measures of the ECB. However, although the dollar is expensive, we believe that it gives us some stability with respect to the volatility of the markets. We are neutral but we believe that we always have to have exposure to the dollar.
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What is the best way to invest in the region?
Victory Tower. It will depend a lot on your profile, your assets and the time you have to watch your portfolio. One way to do this is by choosing the most interesting securities, via ETFs or in a diversified way through investment funds. We in the advised portfolios do not have any pure US funds because our approach is through the megatrends that, naturally, have a lot of weight in the US. An example is Robeco Global Premium, which has more than 50% exposure to the US, or Deutsche Bank’s infrastructure fund, which has more than 40% in the US. We do exposure to the health sector through a Blackrock fund that has 70% exposure to the US. Although if a client wants a fund we are more positioned in the value part and the Robeco US Premium is a fund with a greater weight of value companies, large companies, diversified exposure and tries to establish those companies that may have some advantages and others that benefit of the business moment.

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