The crisis that engulfed markets in March when the reality of Covid-19 and the potential for nationwide lockdowns struck rattled equities around the world. However, for those who looked through the volatility hitting companies’ shares and instead focused on their underlying value, there were significant opportunities to be found.
It was a situation that suited value investors seeking inherently stable businesses. However, focusing on value does not only mean rooting out the cheapest stocks. Instead, it is important to find strong businesses and wait for their share price to become discounted.
Many companies in markets are currently overvalued and we took advantage of the market volatility this year to buy into three companies we believed presented a large opportunity, but were hit by market falls. We think these stocks are likely to compound their value in future and we were able to purchase them at attractive levels.
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Heading skyward
Headquartered in California, Skyworks Solutions (Nasdaq: SWKS) is one of the leading lights in the semiconductor sector. In layman’s terms, this refers to the microchips and technology used to power all the gadgets and devices that many of us have come to rely on – particularly as our lives turned digital during months of lockdown.
Skyworks designs and develops the products and parts that help power, among many other things, our smartphones. It is well-placed to benefit from the increasing complexity governing how technology and the internet is connected, as well as from new developments such as the rollout of 5G mobile networks. Its latest results saw it surpass expectations and deliver sales of $957m, a 16% rise year-on-year, in its fourth-quarter, which ended on 30 September 2020. It is likely to increase its market share and further entrench itself as a leading manufacturer in the semiconductor sector.
Private equity with global reach
The pandemic will undoubtedly have an impact on the short-term earnings of Carlyle Group (Nasdaq: CG). But the company is well positioned to benefit from corporate changes over the longer term. An alternative-asset manager specialising in private equity, Carlyle has global reach and will find itself faced with plentiful opportunities to deploy capital and rebuild businesses affected by the fallout from Covid-19. We believe it is another inherently solid company poised to grow significantly in the coming years.
An aerospace stock set for take-off
TransDigm Group (Nasdaq: TDG) is an aerospace firm, but not one that relies on the sale of aircraft, which has been the root cause of struggles for other businesses in the sector. Its business model is based to some extent on the sale of new parts for jets; most of its sales, however, are tied to the aftermarket and passenger air miles. As a result of the pandemic, revenues and free cash flow are down, but we believe TransDigm Group has the ability to rebound extremely quickly once some level of normality is restored and a vaccine against Covid-19 is rolled out. We expect it to have among the highest prospective returns in our current portfolio.
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