Three consumer stocks for defensive plays
Crowding by investors into defensive stocks means they cease to be defensive, according to Platinum, but some global consumers stocks still look attractive.
In a conversation between portfolio manager, James Halse, and investment specialist, Julian McCormack, the pair discussed the macro fears concerning investors.
Halse said: “Everyone has been so worried about rising rates, and then the Russian invasion of Ukraine and the effect on global geopolitics, that there’s a lot of investor crowding into very defensive stocks.
“So stocks that should be thought as defensive are trading at extremely elevated valuation levels.
“That business may be defensive but if the stock is too far overvalued, it ceases to be a defensive stock.”
Halse, who was head of Platinum’s consumer team, said he was concerned about global consumer brands, in general, as he felt they had further downside to go but there were certain names which stood out from the pack.
“I’m very cautious on a lot of US names, I think there’s still a lot of downside potentially to go because we are still seeing margins and sales at extremely elevated levels. While, there is a sense there will be some reversion in a way that the market is pricing these stocks, they have not priced in a return to pre-COVID levels.”
The stocks which stood out, Halse said, were those which were yet to return to pre-pandemic levels in terms of revenue and earnings or benefit from re-opening. These included Yum China, which owned KFC in China, Japanese brewer Asahi Group and Chinese travel company Trip.com.
“Yum China has a great track record, its revenues and earnings are still well down as they are managing through a continued lockdown and the stock’s trading on a very attractive valuation to what it has traded on historically.
“Travel has been severely curtailed in China and Trip.com has really suffered as result of that. But you have to think we are going to come through this pandemic at some point and when we do, I expect Trip.com to do quite well.”
AUTHOR
Laura Dew
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