Three top stocks set to thrive after the turmoil

Professional investor Ed Wielechowski of the Odyssean Investment Trust picks three companies that should benefit from the current market situation.

“May you live in interesting times.” This apocryphal Chinese curse springs to mind when looking at today’s equity markets. The initial wave of the Covid-19 virus may have peaked in Europe and the US, but the longer-term trajectory of the disease and its economic impact remain highly uncertain. Throw in geopolitical tension between China and the US and a Brexit deal still to be agreed, and “interesting” seems an understatement.

Investing against such a backdrop can be a challenge, but it also offers opportunities. At Odyssean we aim to exploit these by retaining a focus on our core philosophy – backing high-quality businesses where engagement can improve returns – and identifying companies that benefit from the current market situation.

Finding oversold first-rate cyclicals 

When cyclicals sell off, investors need to judge the timing of a rebound and appropriate entry valuations. These are not easy questions to answer. We take comfort in backing market leaders at valuations supported by significant real assets. Elementis (LSE: ELM) fits this bill. 

The company is a leading producer of speciality chemicals sold into a broad range of industrial and personal-care end markets. The group enjoys strong market positions with access to unique mineral assets underpinning differentiated, premium products. 

The group should benefit from a cyclical recovery in demand after the virus, while synergies from recent mergers and acquisitions and targeted cost savings of $15m will help too. The shares trade on a price/book ratio of just 0.5 compared with a five-year average of 1.8, suggesting significant value.

Profiting from uncertainty

We also seek out companies that should emerge as winners from the current market disruption. Looking beyond the obvious, direct winners (such as online retail) we like are firms we think capable of gaining market share in uncertain times. Volution (LSE: FAN) falls into this category.

Volution is a leader in domestic and commercial ventilation equipment. The company has leading positions across the UK, Europe and Australasia in a growing market. Energy-efficiency standards are driving increased ventilation spend per property. 

As a well-capitalised, larger player in a fragmented market, Volution should benefit from turbulence in the sector. Its ability to maintain supply and inventory should allow it to gain market share and its access to capital means it could buy up distressed smaller players. 

Growth stocks that can move up a gear

Finally, high-quality businesses in growth markets led by capable managers that could improve overall performance are highly appealing, but rare, investment opportunities. SDL (LSE: SDL) is an example.

It is a leading global provider of translations services and related software tools. The company serves blue-chip corporate clients in a market growing at a mid-single digit rate as content volumes grow exponentially. 

SDL boasts a high level of recurring sales, plenty of scope for improving margins, a record of accretive bolt-on acquisitions, a strong management team and a healthy balance sheet. It’s a long-term story we would like whatever the market conditions.

Recommended

Changpeng Zhao: Binance founder undaunted by the crypto winter
Bitcoin & crypto

Changpeng Zhao: Binance founder undaunted by the crypto winter

Changpeng Zhao, the founder of controversial cryptocurrency exchange Binance, has been severely battered by carnage in the sector. But the future is b…
3 Jul 2022
Ray Dalio’s shrewd $10bn bet on the collapse of European stocks
European stockmarkets

Ray Dalio’s shrewd $10bn bet on the collapse of European stocks

Ray Dalio’s Bridgewater hedge fund is putting its money on a collapse in European stocks. It’s likely to pay off, says Matthew Lynn.
3 Jul 2022
Just how powerful is artificial intelligence becoming?
Tech stocks

Just how powerful is artificial intelligence becoming?

An uncannily human response from an artificial intelligence program sparked a minor panic last month. But just how powerful are machines getting – and…
2 Jul 2022
Persimmon yields 12.3%, but can you trust the company to deliver?
Share tips

Persimmon yields 12.3%, but can you trust the company to deliver?

With a dividend yield of 12.3%, Persimmon looks like a highly attractive prospect for income investors. But that sort of yield can also indicate compa…
1 Jul 2022

Most Popular

UK house prices are definitely cooling off – but are they heading for a fall?
House prices

UK house prices are definitely cooling off – but are they heading for a fall?

UK house prices hit a fresh high in June, but as interest rates start to rise, the market is cooling John Stepek assesses just how much of an effect h…
30 Jun 2022
How to invest in copper, the most important metal in the world
Industrial metals

How to invest in copper, the most important metal in the world

As the world looks to electrify and try to move away from fossil fuels, copper looks set to be the biggest beneficiary. But how can you invest? Rupert…
30 Jun 2022
Don’t try to time the bottom – start buying good companies now
Investment strategy

Don’t try to time the bottom – start buying good companies now

Markets are having a rough time, so you may be tempted to wait to try to call the bottom and pick up some bargains. But that would be a mistake, says …
1 Jul 2022