Not all companies are negatively impacted during recessions and some will actually thrive, according to Insync Funds Management (Insync).
“Some firms have such strong tailwinds, and are run by such great teams, with such strong finances, they do well even in recessions and other macro events that punish most others,” said Insync CEO, Monik Kotecha.
"The important thing to remember is that stock price progress, even for these companies, isn't linear. However, longer term, the correlation between sustainable earnings growth and stock price is extremely strong.”
Mr Kotecha said globally, Nvidia, Adobe, LVMH and Microsoft are great examples.
“Nvidia ramped up their GPU chip prices 10-20% recently without impacting sales and further contributing to their earnings,” he said. “Adobe is another. Microsoft also recently raised prices 20% across the board and sales rose too.”
He also said that, perhaps surprisingly, luxury goods company LVMH is another company that actually thrives in hard economic times. “It recorded revenue around €56.5 billion in the first nine months, up 28% compared to the same period last year.”
Inflation has little impact on the production costs of these companies, he said. “The combination of high resilient margins, great brands, quality products and strong pricing power, delivers superior results even in times like now. They all possess something unique."
Mr Kotecha said their stock prices will reflect the superior position and outcomes of these companies. “It’s important not to try and time when, as this needlessly increases risk,” he said. “Instead, follow the bouncing ball - earnings growth.”
Markets have already fully priced-in higher interest rates, according to Insync, thus earnings are now the market’s focus
"Investing in the highest quality stocks benefitting from megatrends delivers strong earnings growth over a full economic cycle. This is because the duration of megatrends is far longer than mere themes and are mostly impervious to events. These particular stocks benefit from the Streaming, Gaming, Enterprise Digitisation, and Premiumisation megatrends.”
Insync has identified 16 global megatrends which are providing tailwinds for growth, irrespective of macroeconomics, that also possess quality stocks within them.
“They are the reason why we remain fully invested despite market swings,” Mr Kotecha said.