We’ve got big tech earnings on the way from Microsoft and Alphabet, as a Fed meeting also looms.
What are big money managers worried about? “The problem is we’re priced for a soft landing,” Matthew McLennan, co-head of the global value team at First Eagle Investments, told WealthTrack in a recent interview. “But there’s been no landing.”
Context: Inflation is in retreat, says IMF, which now foresees a ‘soft landing’ for U.S.
McLennan, who oversees around $90 billion in assets, says with high U.S. employment, it may be tough for the Fed to ease much without triggering more inflation. He also frets the market is ignoring a poor U.S. fiscal situation, with government debt rolling into higher rates.
Those concerns can be tempered with diversified and balanced investments, says McLennan, also co-portfolio manager of the five-star First Eagle Global Fund SGENX, which he’s managed since 2008. Bottom-up stock pickers, McLennan and company seek businesses with an “incumbency advantage in industry niches that are available at the right price.”
He says the portfolio is split 50/50 between U.S. and international names, and some gold.
“Around 70% to 75% of our portfolio is in businesses that we want to own for the next decade, but we have about 15% of the portfolio in gold and gold miners as a potential hedge,” McLennan said, noting that slightly more gold exposure lately addresses U.S. fiscal worries, as those assets will perform well “if expectations become more modest going forward.”
As for stock picks, the manager begins with the hot artificial intelligence sector, where he sees a range of companies benefiting. Two of his biggest holdings have been Meta Platforms
META
and Oracle
ORCL,
where he says valuations are “quite reasonable” relative to potential growth.
But he also likes companies using AI in their business processes, such as Japan’s Fanuc
JP:6954,
an industrial automation giant that has “long been invested in studying AI,” and using it for predictive maintenance of its robots.
McLennan says investors “don’t have to buy a concept stock at 40 times earnings or 50 times earnings to be a beneficiary of AI in the economy.”
Fanuc trades at 28 times current earnings, versus 35 for Meta and 82 for Nvidia
NVDA.
His next pick is the São Paulo-headquartered brewer AmBev
ABEV,
which is just over half-owned by Anheuser-Busch InBev
BUD,
with a growing business, no debt, net cash and a 6% dividend yield. AmBev, he says, is just one of many staples with “century-long brands that trade at a discount to the market,” he says.
“And so if you’re willing to buy something that’s seen as a little more stodgy in this environment, then I think something like an AmBev, because of its emerging-market taint … is reasonably valued,” he says.
Its brands include Brahma; Antarctica; and Quilmes, the top Argentine beer, in which it holds about a nine-tenths interest.
McLennan also invests in China’s unloved market via Dutch-listed holding company Prosus
NL:PRX,
which holds a 27% stake in Tencent
HK:700,
a leading online Chinese business with top gaming, social-media and ad platforms.
Tencent trades at less than 10 times earnings before interest, taxes, depreciation and amortization, with a strong balance sheet, and is buying back stock, he notes. Prosus trades at a discount to the value of its Tencent Holdings and has another 25% chunk in leading online businesses in Eastern Europe, Brazil and India.
He lastly flags Exxon Mobil
XOM
as “an essential infrastructure company” that’s been in the portfolio for a number of years as an investment for long-term investors looking to diversify.
Exxon holds some of the “greatest energy basins in the world that have the longest duration and are the most cost-effective,” while its upstream business is oil and natural gas, which has “a far lower hydrocarbon intensity,” he says.
And the above companies can ride out tougher environments, says McLennan. “I think if you own good businesses that sell relevant products at rational prices, it’s a good place to be long term,” he says.
Read: There is no such thing as price-to-innovation. Explaining the viral clip and the valuation measure that Peter Lynch made famous.
The markets
Stocks are struggling at the start, with bond yields
dipping as a two-day Fed meeting is set to get under way. Gold
GC00
is 1% higher at $2,065.10 an ounce. The Hang Seng
dropped 2.3%.
| Key asset performance | Last | 5d | 1m | YTD | 1y |
| S&P 500 | 4,927.93 | 1.30% | 3.90% | 3.31% | 20.88% |
| Nasdaq Composite | 15,628.04 | 1.31% | 5.84% | 4.11% | 34.90% |
| 10 year Treasury | 4.05 | -8.78 | 11.40 | 16.91 | 53.85 |
| Gold | 2,037.40 | 0.71% | -1.66% | -1.66% | 5.97% |
| Oil | 76.75 | 2.79% | 7.60% | 7.60% | -1.36% |
| Data: MarketWatch. Treasury yields change expressed in basis points | |||||
The buzz
UPS
UPS
is sinking on a revenue fall and downbeat outlook. And General Motors
GM
and Pfizer
PFE
are climbing on strong results. After hours, Alphabet
GOOGL
(preview), Microsoft
MSFT
(preview) and AMD
AMD
(preview), alongside Starbucks
SBUX
and Electronics Arts
EA,
will all report quarterly results.
Berkshire Hathaway–held BYD’s
CN:002594
earnings guidance disappointed, and the Tesla
TSLA
rival’s shares fell 4%.
The S&P Case-Shiller U.S. home-price index showed prices hit a new high in November. Job openings and consumer confidence are due at 10 a.m. Data showed Europe’s economic stagnation continued. The IMF lifted its global economic growth outlook, saying a hard landing is unlikely with growth improving and inflation ebbing.
Elon Musk says his neurotechnology company Neuralink carried out its first brain implant in a human patient, describing the result as “promising.”
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