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The path of success for growth investors is to focus on strong corporate fundamentals, no matter the market conditions, says Jyotsana Wadera, senior client portfolio manager with Putnam Investments.
Wadera said companies with strong financial positions and pricing power should do well despite market turbulence, regulatory scrutiny, a divisive U.S. election and general uncertainty over the next Federal Reserve Board interest rate move.
“There’s always something that concerns the markets. And uncertainty always creates volatility,” she said. “But I think the key is that longer-term fundamentals prevail. Stock prices follow earnings.”
Wadera said it has been a good year for U.S. equities, despite some negative headlines and market drawdowns.
“Both the S&P 500 and the growth index — whether you’re looking at the Russell 1000 Growth or Russell 3000 Growth — are up north of 20% year to date,” she said. “Returns and performance have really been strong across U.S. equities.”
Investors may consider regulatory scrutiny a headwind, she said, but that often comes with innovation.
“You’re seeing Google come under a lot of scrutiny lately. AI is exponentially growing. There are concerns. And, so, I can see the regulatory environment being a headwind for growth investors,” she said. “[But] if you look at the dawn of the internet, if you look at all the regulatory scrutiny Microsoft had when they launched their software, and now Google with its search engine, this is kind of part of growth companies doing really well, doing what we would want them to do: have competitive advantages.”
As for tailwinds, she said artificial intelligence is creating enormous opportunities in fields as varied as communication services, healthcare, biotechnology, consumer discretionary, transportation and industrials.
“These sectors, combined, make over 75% of the growth universe,” she said. “So, I feel like there are multiple tailwinds for growth investors, and, quite frankly, multiple ways to win.”
She particularly likes Intuitive Surgical, a Sunnyvale, Calif.-based company benefiting from multiple themes, including AI, subscription revenue, and strong consumables. The company invests heavily in research and development, manufactures devices and peripherals for sale, and licenses its technology through annual subscriptions.
“We think robotic surgery will become pervasive for a number of procedures. And Intuitive Surgical is a clear leader,” she said. “We can see this company benefiting from AI, as well as just benefiting from more elective surgeries happening globally, as we see aging populations.”
Wadera also likes Stockholm, Sweden-based music-streaming platform Spotify, with its 600 million users. It has captured over 30% global market share for paid music subscriptions and is starting to grow its product offering with podcasts and audiobooks.
“They have really found cost discipline,” she said. “It’s very reasonably priced, particularly relative to video streaming and other companies. Also, they have the ability to raise prices modestly and you’re not going to lose subscribers along the way. We think they can grow subscribers 5 million to 6 million a year.”
She stressed the importance of seizing opportunities when they present themselves.
“My takeaway for investors, and particularly in [the] growth space where I think you have robust returns, is … to think about long-term investments,” she said. “You have to be invested in the stock markets. Trying to time it is a very difficult task. You have to be present to win.”
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This article is part of the Soundbites program, sponsored by Canada Life. The article was written without sponsor input.