FMT Advisory’s research has identified a few money trends that we have just begun to allocate capital towards.
One huge money trend we are invested in is that of value businesses beginning to outperform their sexy growth counterparts as the growth-value cycle shifts.
When economic growth is tepid, investors pay up for companies that can grow at a faster pace without the need for solid economic expansion. Simply put, investors prefer businesses that perform well regardless of economic growth during slow GDP output.
However, as economic growth picks up, high-growth companies tend to peak due to valuations. When the economy expands more quickly, it benefits the businesses that have been left behind because they offer value. Economic growth especially benefits these value businesses the most because they pick up extra margin on even tiny amounts of incremental sales volume.
Since the economy has been moving slowly since 2009, growth has vastly outperformed value, which is a phase that is starting to turn because higher economic growth appears likely.
Trump’s tax plan could catalyze GDP expansion and benefit certain value companies in much more beneficial ways than in past cycles when growth loses to value.
Some of the big details in Trump’s tax plans for investors are lower corporate tax rates (35% marginal tax rate to 20%), a tax holiday for those companies holding cash overseas, and immediacy for capital expansion depreciation.
Our research indicates that over $900 billion (b as in billion) in cash sits in overseas accounts within the largest U.S. companies alone, and at least $200 billion of this corporate cash hoard will be repatriated for share repurchases, dividend increases, and capital spending (a boon to economic growth) during the administration’s tax holiday (a smart move to bring cash back to benefit U.S. activity).
FMT Advisory has identified the companies with the largest cash piles sitting overseas that stand to benefit most. Best of all, the companies we have been looking to identify are those that are considered value companies that should benefit not just from the shift in the growth to value reallocation phase, but also because of the tax plan tailwinds as well.
We also believe the immediate expensing provisions for capital expenditures will benefit companies in high-cap-ex industries (especially since cap-ex has been down the last few years in some industries).
We believe energy names, for example, could benefit as a high-cap-ex industry for a couple reasons. We just conducted extensive follow-up research on the energy industry, and FMT Advisory believes energy is cheap again in the short- to medium-term. Demand for oil is starting to outpace supply and productivity gains year over year in the Shale are non-existent.
With cap-ex depreciation immediacy, higher economic growth, and more oil production needed to satisfy worldwide demand, the energy complex is looking attractive again.
In summary, our research at FMT Advisory shows that value will continue to over-deliver in the short to medium-term and we have been identifying value companies that will also benefit from:
- Paying lower taxes
- Repatriating vast non-U.S. cash holdings back onshore, which should benefit shareholders via share repurchases and dividend increases
- Immediately expensing capital expenditures (which should also help economic growth)
As for growth, FMT Advisory has also identified the country with the youngest demographic in the world growing at over twice the rate of the United States, which will be an enormous long-term boom for a variety of companies, possibly delivering 100x-type returns to investors in carefully chosen compounders. We are on the hunt in this country for specific businesses that are going to benefit from massive long-term growth in the years ahead.
We’ll keep you appraised of these money trends as the world spins.
Chief Investment Officer