Q3 Opportunities + threats, from Nike to eCommerce 2020 winners.
Cantor recently held a webinar examining the Q3 outlook. I’ve summarised a number of the insights they covered.
Short term concerns cited included issues with China - US relations, the fiscal cliff, commercial real estate, the US re-closing and how the election result may influence the economy.
Short term concerns:
Re-closure: There are signs that the cases are increasing again and that the states are re-closing again and at the time when the support schemes are rolling off again.
Election year: the market may not like the democrats winning because of their tax policy initially, however in the long term Biden’s version of the ‘Green New Deal’ and his plan for spending on mass infrastructure may long term be exceptionally good for US growth. You may finally see coordinated long term spending in the US if there is a democratic clean sweep.
Dollar implications: over the next 12-18 months, Cantor believes dollar strength may decrease as more balanced global growth takes pace. The growth outlook for Europe looks good.
Opportunities
5G: Some of the trends cited include enterprise led IT spending as industries seek to modernise, US tech will continue to perform strongly. In the same way as 4G led to a wave of very popular apps leveraging this technology, expect 5G related developments to take pace, US tech will continue to perform strongly,
European stocks: Europe has previously been the laggard, with poor performing banks and energy stocks. Macron and Merkel have talked about the building of national champions.. Europe is beginning to come to the fore with the development of renewable energy and smart factories projects. These projects and sectors will also provide opportunities for US companies.
Nike: in terms of specific stock opportunities Cantor touched upon Nike and how Covid has rapidly accelerated their transformation. It’s far more profitable for Nike to sell you trainers online than through a shop and Covid has rapidly accelerated their growth to online. They are two years early on their target to reach 30% of digital sales by 2020 with a new target in place of 55%. Digital generates double the revenue for them.
Paypal: Covid has accelerated the flight to online from physical for a lot of consumers and retailers, An eCommerce company like Paypal is perfectly positioned to benefit from this trend. Paypal is effectively a monopoly in their space.
The above slide from the Cantor presentation demonstrates how eCommerce has been growing in the US and the kink in the curve shows how it has accelerated during Covid. It also shows the high level of penetration in China, of which the US has still a long way to go. This acceleration also provides rich rewards for the companies handling the logistics and delivery of eCommerce like Deutsche Post DHL.
Logistics + Robotics: This exponential growth of eCommerce also presents opportunities for robotics and automation as logistics companies digitise. Examples of companies Cantor believe offer value include the two Japanese companies Keyence and Fanuc who specialist in Robotics. All these developments will require extra computational power which will be supported by 5G but will require increased reliance on semi-conductor companies TSMC (Taiwan Semiconductor Manufacturing Company) use 5% of Tawians electricity power. As they have needed so much power they have partnered with Orsted to build their own renewable energy plant off Taiwan. Cantor believe TSMC, Keyence and Fanuc all offer grwoth opportunities.
Finally like most they believe Irish banks are not a good buy, avoid the UK stock market and there's potentially value in commodities like silver *(they obviously gave much further context and detail!).
Check out Cantor's site here for more research pieces and upcoming webinars.