Investors want to lean into the dip as fundamentals remain strong, says Raymond James' Matt Orton
Summary
- Matt Orton is broadly bullish, expecting a 15% stock market rally this year, viewing geopolitical uncertainty as noise to buy into strong fundamentals.
- Core thesis: lean into market dips due to strong underlying fundamentals including record S&P 500 profit margins and accelerating earnings growth.
- Earnings growth is broadening beyond large caps; small caps are projected to exceed S&P 500 earnings growth this year.
- Advocates selectivity within durable secular growth trends, emphasizing tech, industrials, and high-quality small caps.
- Within tech, favors semiconductors (e.g., TSM), memory, and optical names poised to benefit from AI and capex investment trends highlighted at events like GTC.
- Likes industrials exposed to the capex supercycle, specifically electrical equipment companies and early site developers for data centers.
- Avoids early-cycle industrials that could be hurt by near-term higher energy prices.
- Cautious on financials due to private credit concerns and non-constructive price action in banks and insurance companies.
- Questions the recent run in consumer staples as fundamentally unjustified, especially for lower-end consumers sensitive to higher interest rates.
- Highlights high-quality small caps that are free cash flow positive with earnings growth as less dependent on interest rate movements.
- Notes biotech acquisition activity is supported by large pharma cash balances, reducing rate sensitivity.
- Key risk: a sideways or higher interest rate environment could pressure rate-sensitive sectors like consumer staples.
Trade Ideas
Speaker states financials are "concerning" due to private credit issues and that price action in banks and insurance companies is "not constructive." Concerns over credit quality and weak technicals suggest fundamental and sentiment headwinds for the sector. The sector presents unattractive risk-reward; it is an area to avoid until conditions improve. If private credit concerns are overstated, the sector could rebound, but current evidence suggests caution.
Speaker explicitly names TSM as one of his favorite names, down over 10% from all-time highs, and states it will benefit from industry trends discussed at GTC. As a leading semiconductor company, TSM is positioned to capture growth from increased investments in AI and technology infrastructure. Attractive valuation after pullback combined with strong secular demand drivers support a long view. Geopolitical tensions or a slowdown in global tech capex spending could hinder performance.
Speaker says industrials "benefit significantly from this big capex supercycle," liking electrical equipment companies and early site developers for data centers. These companies are direct beneficiaries of increased infrastructure and data center investment, driving earnings growth. Exposure to capex trends makes this sector attractive for investment, while avoiding early-cycle cyclicals hurt by energy prices. Higher energy prices in the short term could impact some cyclical components of the sector.
Speaker states "tech is still a place to be," specifically citing semiconductors, memory, and optical names that will require big investments. These segments are central to the AI and data center capex supercycle, offering durable growth less disrupted by near-term uncertainty. The sector has strong growth potential, but selectivity is required to focus on beneficiaries of secular trends. Not all tech companies will benefit equally; poor stock selection could lead to underperformance.
Speaker questions the "huge run in consumer staples" as not justified by fundamentals, noting lower-end consumer sensitivity to higher rates. In a sideways or higher rate environment, consumer staples, especially those serving lower-income segments, face margin pressure and demand risks. The sector's valuation appears stretched relative to fundamentals, making it less attractive for investment. If rates fall significantly, consumer staples could regain appeal, but current dynamics suggest avoiding.
