Investors should look beyond the mainstream momentum, says DCLA's Sarat Sethi
Speakers
Sarat Sethi
— Managing Partner, DCLA
Summary
Sarat Sethi discusses how investors can find opportunity beyond mainstream momentum stocks. He highlights undervalued high-quality names like Stryker and Ferrari, payment giants Visa and Mastercard, cheap media plays Comcast and Disney, and copper miners as a play on data centers and EVs. He is cautious on GM and warns that elevated rates and credit market cracks could pressure growth valuations.
- Sethi sees froth in semiconductors and tech but finds value in high-quality stocks trading at multi-year low multiples
- Recommends Stryker (SYK) at 19x earnings (normally 25-30x) and Ferrari (RACE) at 17x EBITDA (normally 25x)
- Likes Visa (V) and Mastercard (MA) for their toll-like business models and tokenization trends
- Sees Comcast (CMCSA) as very cheap with consolidation potential and Disney (DIS) at 14x earnings with multiple catalysts
- Favors copper miners Freeport-McMoRan (FCX) and Teck Resources (TECK) due to data center/EV demand and a decade of no new mine supply
- Avoids GM and warns on auto parts/retail due to macro pressures and consumer pullback
- Expects rates to stay elevated, limiting cuts, and notes credit market cracks with widening spreads and rising 10-year yields
Ideas
Stryker trades cheap at 19x earnings.
Stryker (SYK) is a high-quality orthopedic company that normally trades at 25-30 times earnings but is now trading at 19 times earnings, presenting an opportunity to own durable earnings and cash flow at a discounted valuation after a temporary cyber issue created the dip.
Ferrari at 17x EBITDA is cheap.
Ferrari (RACE) is a high-end, high-quality growth company insensitive to income levels, historically trading at 25 times EBITDA, now trading at 17 times EBITDA, offering a chance to buy quality growth at a reasonable price.
GM faces macro headwinds, avoid.
General Motors (GM) faces macro headwinds because consumers pull back on car upgrades first during uncertain times, making it very hard to invest for the long term despite near-term positive trends.
Visa, Mastercard have toll-like businesses.
Visa (V) and Mastercard (MA) are loved for their toll-like business models and are leveraging tokenization and crypto to enhance their businesses, providing durable growth.
Comcast cheap with consolidation catalyst.
Comcast (CMCSA) is very cheap and has potential consolidation catalysts with the Disneys of the world, making it an attractive value play.
Disney cheap with new CEO catalysts.
Disney (DIS) trades at 14 times earnings with multiple catalysts including a new CEO and strong theme park experiences, offering an attractive entry point.
Copper demand from data centers, EVs.
Copper demand will be driven by high demand for data centers and EVs, while no new copper mines have been built in ten years, creating a supply-demand imbalance that benefits miners like Freeport-McMoRan (FCX) and Teck Resources (TECK), which are also sold in dollars and could benefit from dollar strength.
