Volatility has returned. (And we’re not just referring to US politics). Equity markets around the world – including in Japan, Taiwan, Europe and the US – have sold off over recent days and weeks.
Pundits have offered lots of possible reasons for the recent stock price declines. From new recession fears in the US, to heightened geopolitical risks in the Middle East, to fears that AI has been overhyped and will fail to deliver on elevated expectations.
In a system as complex as the global financial markets, no one really knows for sure what is behind the volatility. But we do know that, despite the momentary discomfort it brings, volatility often throws up new buying opportunities. And being selective is key in this market, in our view.
In studying the current round of quarterly results being filed by global companies, we are seeing several businesses that are doing very well, with improving probabilities around future growth options, and yet their stock prices have come under pressure of late.
These include the likes of KKR, Blackstone, Amazon, Spotify, Meta, LVMH and Kyndryl Holdings. To us, the combination of improving business fundamentals and falling stock prices equals greater investment opportunity.
Microsoft is another example. Upon reporting Azure growth of +30%p.a., guiding to +29%p.a. for next quarter, and acceleration in growth thereafter, its stock price declined. This doesn’t make a lot of sense to us and represents an even better buying opportunity than it was before the result.
Some of Montaka’s investee companies have largely avoided the selloff so far. S&P Global has held up well after reporting strong and consistent growth and profit margin expansion.
Another is ServiceNow which is well positioned to continue leading the structural wave of enterprise digital transformation. This is a US$10 billion revenue business, with bookings already locked in for another US$19 billion – and growing at more than 30%p.a.
This month, in ‘3 stocks winning from the enterprise software ‘Revolution’‘, Amit shares four important tailwinds that are helping enterprise software platform leaders, including the likes of ServiceNow and Microsoft, strengthen their advantages over time.
In ‘The dangers of simple ‘rule of thumb’ PE valuations in today’s market’, Andy asks when is a valuation multiple too high? By going back to first-principles thinking, we show that, for highly advantaged businesses that can invest capital at high rates of return to grow their earnings sustainably, the ‘fair’ valuation multiple is often a lot higher than most might expect.
Finally in this month’s Spotlight Series podcast, join our investment team – Andy, Chris, Amit and Lachie – as they dive into the recent stock price declines. Are these drops a sign of trouble, or is there more to the story? Hear them discuss the latest KKR and Spotify results, where despite market turbulence, these companies showed excellent fundamentals.
Letter from the PMs – August 2024
– Andrew Macken & Chris Demasi
Volatility has returned. (And we’re not just referring to US politics). Equity markets around the world – including in Japan, Taiwan, Europe and the US – have sold off over recent days and weeks.
Pundits have offered lots of possible reasons for the recent stock price declines. From new recession fears in the US, to heightened geopolitical risks in the Middle East, to fears that AI has been overhyped and will fail to deliver on elevated expectations.
In a system as complex as the global financial markets, no one really knows for sure what is behind the volatility. But we do know that, despite the momentary discomfort it brings, volatility often throws up new buying opportunities. And being selective is key in this market, in our view.
In studying the current round of quarterly results being filed by global companies, we are seeing several businesses that are doing very well, with improving probabilities around future growth options, and yet their stock prices have come under pressure of late.
These include the likes of KKR, Blackstone, Amazon, Spotify, Meta, LVMH and Kyndryl Holdings. To us, the combination of improving business fundamentals and falling stock prices equals greater investment opportunity.
Microsoft is another example. Upon reporting Azure growth of +30%p.a., guiding to +29%p.a. for next quarter, and acceleration in growth thereafter, its stock price declined. This doesn’t make a lot of sense to us and represents an even better buying opportunity than it was before the result.
Some of Montaka’s investee companies have largely avoided the selloff so far. S&P Global has held up well after reporting strong and consistent growth and profit margin expansion.
Another is ServiceNow which is well positioned to continue leading the structural wave of enterprise digital transformation. This is a US$10 billion revenue business, with bookings already locked in for another US$19 billion – and growing at more than 30%p.a.
This month, in ‘3 stocks winning from the enterprise software ‘Revolution’‘, Amit shares four important tailwinds that are helping enterprise software platform leaders, including the likes of ServiceNow and Microsoft, strengthen their advantages over time.
In ‘The dangers of simple ‘rule of thumb’ PE valuations in today’s market’, Andy asks when is a valuation multiple too high? By going back to first-principles thinking, we show that, for highly advantaged businesses that can invest capital at high rates of return to grow their earnings sustainably, the ‘fair’ valuation multiple is often a lot higher than most might expect.
Finally in this month’s Spotlight Series podcast, join our investment team – Andy, Chris, Amit and Lachie – as they dive into the recent stock price declines. Are these drops a sign of trouble, or is there more to the story? Hear them discuss the latest KKR and Spotify results, where despite market turbulence, these companies showed excellent fundamentals.
Sincerely,
Andrew Macken & Chris Demasi
Podcast: Join the Montaka Global Investments team on Spotify as we share real-time examples and investing tips that govern our stockpicks. Click below to listen. Alternatively, click on this link: https://podcasters.spotify.com/pod/show/montaka
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Note: Montaka is invested in LVMH
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