The Good
Which brings us to the good – of which, like in the Wild West of Leone’s films, there is often a dearth. Asked what he would pick as a good company in this environment, Parry suggests healthcare firm Novo Nordisk. A firm, he says, which has the potential to ride out the storms generated by a change in interest rates, because its earnings come from areas – like diabetes drugs – that should be unaffected by a rise in interest rates.
“The share price might come down, but it will survive as a company,” Parry says. “In the current market, one has to be highly selective and emphasise alpha over beta. In the good times beta tends to trump alpha, but in the bad times it is the quality of earnings that becomes important.”
Coram Asset Management’s James Sullivan shares a similar view. Quoting Walter B Wriston, who once said ‘Capital goes where it’s welcome and stays where it’s well treated’, Sullivan said, it is hard to find companies that qualify at present.
“However, when going into a tunnel, no matter how long or dark, it’s reassuring to know that you’ll come out the other end! The same is true when buying high quality value stocks.”
At present, he says, in that category, the pharma or tobacco sectors spring to mind, with Glaxo Smith Kline and British American Tobacco two good examples.
“Putting valuations and growth prospects to one side, the dividend cover is huge comfort, and offers compensation for capital volatility, something that is priceless in this market. Yields on many other sectors right now may turn out to be nothing more than a mirage,” he adds.
