Bullish on the U.S. Manufacturing Renaissance and Cyclical Businesses by Royce Funds
Portfolio Manager Steven McBoyle and Co-Chief Investment Officer Francis Gannon discuss current opportunities rooted in the accelerating growth of the U.S. economy and the search for companies that are investing strategically.
Steven McBoyle: Bullish on the U.S. Manufacturing Renaissance and Cyclical Businesses
Opportunities In Special Situations With Evermore’s David Marcus
ValueWalk's Raul Panganiban interviews David Marcus, Co-founder, CEO, CIO of Evermore Global Advisors. Q2 2020 hedge fund letters, conferences and more Interview With David Marcus ValueWalk's ValueTalks ·
Francis Gannon: So what are the opportunities that you’re finding in the market today?
Steven McBoyle: Well, first let’s begin with the economy. I am very bullish on the U.S. economy. We are increasingly energy independent, we have a manufacturing recovery with a lot of re-shoring; we have growth. It’s low, no doubt, in terms of where we are in the cycle, but it seems to be actually accelerating. We have a federal deficit, a trade deficit, that are both declining at the same time. This ought to be strong for the dollar. So the U.S. economy is a very attractive place to be invested at this point in time.
We are very attracted to industrials, particularly those industrials that are benefitting from the underlying, structurally advantaged energy position that we now have. So these will be natural gas feedstock companies and derivative-related type companies that benefit from that. They can be pick-and-shovel type companies, they can be capital equipment type companies, or even specialty chemical companies that are benefitting from that structural change.
We are also attracted to technology. There is a valuation argument to be made, as a whole, but bottom-up we’re finding a number of companies that have defensible models where pricing power actually may be improving. We find that that actually tends to come by way of significant consolidation within certain subsectors of technology. That’s an area we’re finding interest.
Francis: Do you think M&A activity, or the increase in mergers and acquisitions, is kind of the new form of CAPEX for many of the companies out there?
Steven: Mergers and acquisitions certainly is picking up, and actually of late seems to be accelerating. We’re not back to peak levels in terms of overall M&A deal value, but your point I think is very relevant, which is to say that managements are obviously struggling with the fact that they’re not seeing the typical growth that they would at this point in time in the cycle, and they have to, from a capital allocation perspective, determine do I build versus buy. And with rates as we know where they are, managements have somewhat been spoiled into the ability to make that buy versus build decision far more easier. But again, we don’t necessarily look at it from that perspective. We, again, are looking for companies that are investing strategically, not necessarily for financially-oriented reasons.