Personal view: Where to find value in US equities

Each week, a professional investor tells MoneyWeek where he'd put his money now. This week: David Marchant, head of global equities at Insight Investment.

Recently, equity markets have staged something of a rally as credit market concerns eased slightly following the Federal Reserve's rapid policy response to the collapse of Bear Stearns. Yet there are still considerable risks as the impact of the credit crunch on the real economy becomes clearer. Many commentators are now predicting a recession for the US economy and in parts of Europe the housing market looks set to suffer the same fate as America. So my preference is for companies where the outlook for sales and profits is not overly dependent upon the economic cycle. All three of my recommendations are US-listed companies, as we are increasingly being drawn to that market in our search for good value investments. That's because, in recent years, many US-listed firms have been falling in p/e ratio terms, as profits have risen faster than share prices. The depreciation of the dollar has also made American equities cheaper for non-US investors and provided a huge competitive boost to American exporters.

It's well known that soft commodity prices have risen strongly in recent years, driven by changing dietary habits, increasing biofuel production and droughts. Wheat, for example, has risen from just $3 a bushel five years ago to almost $10 today. The share prices of many agriculture-related businesses have surged in response, so we have been looking more widely for stocks set to benefit from this theme. That takes us to Valmont (NYSE:VMI), which manufactures poles for street lights, as well as irrigation systems for farmers. Valmont is not that well known, yet very few other firms operate in the irrigation business and Valmont enjoys around half the global market. Revenues grew by more than 20% a year during 2006 and 2007, driven by increased farm investment to improve efficiency as well as greater penetration in America and overseas. We believe these trends could accelerate as farm incomes continue to rise.

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Another beneficiary of the improvement in farm economics is Trimble Navigation (NASDAQ:TRMB). Like Valmont, it's an American company and is not widely covered by the major investment banks. It is a leader in sophisticated satellite navigation systems, which allow farmers to plough their fields and spread fertiliser or drill seeds with incredible levels of accuracy. This improves efficiency and reduces waste. The company also sells its products to the construction industry, but recent results show it is agricultural demand that is driving sales most strongly. Penetration rates in the sector remain low, which should underpin continued strong growth.

My final stock is ANSYS (NASDAQ:ANSS), a leader in computer-aided engineering (CAE) software. ANSYS's programs allow firms to simulate how their product designs will behave in the real world. So, for example, car companies can crash-test their vehicles in a virtual environment, rather than destroying several expensive prototypes. A construction company can simulate the flow of carbon monoxide around a new design for a multi-storey car park, or an engineering company can estimate the impact of a new submarine landing on the seabed. Demand for the group's products is growing across the world, and it has a long list of blue-chip customers. Profit and sales growth has been strong; the company believes that this should continue, as take up of its software is still a very early stage.