Morgan Stanley er klar i mælet, når det drejer sig om, hvad investorerne bør gøre i det nye år: De må satse på stock picking. Aktieniveauet er meget højt, de finansielle vilkår strammes, og inflationen vokser. Det kan føre til betydelige investeringer i virksomhederne, men resultaterne kommer først om nogle år. Desuden har pandemien ført til en række forstyrrelser på markedet, og det skaber alt i alt usikkerhed om aktieudviklingen. Derfor bliver stock picking vigtigere end nogen sinde. Morgan Stanley mener heller ikke, det er muligt at pege på value- eller growth-aktier som vindere. De har kørt op og ned og giver slutteligt stort set det samme resultat. Dog foretrækker Morgan Stanley store selskaber, da banken mener, at vilkårene for de små bliver vanskeligere. Men der er dog enkelte sektorer, som ifølge banken vil klare sig bedre end markedet generelt: Healthcare, Real Estate, Financials, reasonably priced Software stocks, Consumer and Business Services.
In 2022, Stock Picking May Lead
Coming out of a year marked by greater uncertainty and volatility, 2022 is poised to be a year which favors single stock investing over a focus on style and sector.
2021 has been another very good year for U.S. equity indices. What’s been different in 2021 is the higher volatility under the surface with greater dispersion of returns between individual stocks. This fits very nicely with our overall mid-cycle transition narrative, with one major exception – valuations.
Typically, by this stage of an economic recovery from recession equity valuations would have normalized, particularly with the earnings recovery being even more dramatic than usual. In short, while our sector and style preferences in stock picking was strong in 2021, our S&P 500 price target proved to be too low – in other words, wrong. We think this is more about timing rather than an outright rejection of our fundamental framework or narrative.
With financial conditions now tightening and earnings growth slowing, the 12-month risk/reward for the broad indices looks unattractive at current prices. More specifically, we expect solid earnings growth again in 2022 offset by lower valuations. However, strong nominal GDP growth should continue to provide plenty of good investment opportunities at the stock level.
In our view, the economic and political environment has been permanently altered from its pre-COVID days, although the changes are not necessarily due to the pandemic itself.
What that means from an investment standpoint is higher nominal GDP growth led by higher inflation, which is the only way out from our over indebtedness in the longer term.
Such an outcome should lead to greater investment and higher productivity, but it will take years for that to play out. In the meantime, we will have to deal with the excesses created by the extreme nature of this recession and recovery. That breeds higher uncertainty and dispersion, making stock picking more important than ever in the year ahead.
While our primary theme for 2022 is to focus more on stocks than sectors and styles, one can’t ignore them either. We go into the year-end favoring earnings stability and stocks with undemanding valuations, given our view for a tougher operating environment and higher long term interest rates.
This puts us overweight Healthcare, Real Estate, Financials and reasonably priced Software stocks. We are also more constructive on Consumer and Business Services. With our expectation for payback in demand from this year’s overconsumption, we are underweight Consumer Discretionary Goods, Tech Hardware and commodity-oriented Semiconductors that are prone to double ordering and cancelations.
Small cap stocks have done better recently on the back of newly proposed tax legislation that is much less onerous to smaller domestic companies. However, that is simply the removal of a negative rather than an additional positive for earnings and cash flow. It does nothing to ease the burden of what may be one of the most difficult operating environments for small businesses in decades.
In short, we favor large caps over small, especially after the nice seasonal run in a smaller cohort.
Finally, the obsession over value versus growth should fade as there is no clear winner, in our view, over the next year, but rather trading opportunities like during 2021. Value and growth have each had periods during which they have done considerably better than the other over the past year. But year-to-date they are neck and neck.
We do have a slight bias for value over growth for the rest of the year as interest rates move higher, but this is more of a trading position rather than an aggressive investment view we had coming out of the recession in 2020. Expect our bias to flip flop in 2022 like this year, as macro uncertainty reigns.
Although strategy is a macro endeavor, with stock dispersion remaining high due to uncertainty around inflation, supply chains and policy, we will focus even more on specific relative value ideas, rather than the index, over the next year. We wish you all good fortune in 2022.
