Gerrard analyst Jim wood-smith believes current market volatility means investors should give priority to those stocks ready to rebound
Thematic investment is problematic in current market conditions, according to Jim Wood-Smith, chief analyst at Gerrard.
Speaking at the group's London Investment Conference last week, Wood-Smith said that clear themes were no longer evident in the market, meaning fund managers had to seek individual opportunities.
He said recovery situations show a lot of potential and investors should look to get into stocks which are rebounding after being hit by the recent slump in the market. However, the market generally is not as frail as many think it is, he said. For the year to date 25 out of 35 sectors saw positive growth but the fact that the market is dominated by oil and gas, telecommunications, banks and pharmaceutical stocks has meant that the market's overall position has remained downbeat.
Simon Rubinsohn, chief economist, said that the global economy had held up remarkably well in the aftermath of 11 September.
He said: 'Just after the attacks the question was how bad the recession would be, but in fact we have not seen the technical definition of recession ' two consecutive quarters of shrinkage.'
He said the relative strength of the UK economy was a testament to the dynamism of the economy.
This is highlighted by the fact that the prediction of GDP growth for the year is now 2.5% to 3% rather than the 0.5% that was being predicted at the start of the year. But this confidence has not yet spread to corporate profits where investors and analysts remain sceptical as to the extent to which companies will be able to use pricing power or increase market share, he said. Of the major sectors Wood-Smith is most optimistic on banks. He said they are in a good position to benefit from a future up-turn. Although he does not see any clear thematic plays, Wood-Smith pointed to cyclical, defensive, growth, yield and recovery opportunities.
An important recovery play that Wood-Smith cited was British Telecom, as the group's favourite recovery position in the UK telecom sector. The completed restructuring programme and new management team should mean that the recently announced strategy shift should put BT in a strong position going forward.
A cyclical play that Gerrard highlighted is media company WPP. Wood-Smith said the company reported solid performance for 2001 and it is likely to continue to win new business in 2002.
He said the company had effectively managed its cost base and that its size and diversity should enable it to weather the current down-turn in the market.
Another cyclical stock that Wood-Smith pointed to was concrete producer RMC. He said the company should be able to cut costs and that it is trading at a discount to its UK and European peers.
A defensive stock Gerrard is positive on is Alliance Unichem. The stock is seen as attractive because of its geographic growth strategy and because it attains efficiency gains through working across the whole of Europe.
The company warehouses and distributes drugs on behalf of large pharmaceutical companies which builds up close relations with them enabling them to build up purchasing power.
Follows McVey's resignation
Schroders and Aviva Investors
LightTower Partners, Seneca Partners and Unicorn AM
Integration with Money Dashboard
View from the front row