Top picks from Shane Obata, portfolio manager, Middlefield Capital
Although September is historically the worst month of the year, and volatility may return in the weeks ahead, we maintain a constructive view on the market over the medium term. This outlook is supported by three key supports that remain in place: solid earnings growth, goldilocks economic data and expected monetary easing.
It is clear breadth has improved and the market is being led by a new cohort of stocks. Since July 11, when U.S. CPI came in softer than expected, the Magnificent Seven has underperformed the other 493 stocks in the index by over 14 per cent. The equal-weighted Index has outpaced the cap-weighted Index by over six per cent and more than 70 per cent of stocks have outperformed the S&P 500.
The non-AI semiconductor business showed sequential growth for the first time in first quarter 2022, which speaks to the extent of the cyclical downturn we have seen in semis outside of AI. Prysmian has performed very well over the past few years, driven by an accelerated push for energy security resulting from the Russia-Ukraine conflict. Even so, the stock is much less expensive than other companies in the electrical equipment industry.
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