Forget FANG: Better opportunities in stocks lie among undervalued telecom and healthcare shares, according to the manager of Ariel Investments’ global equity strategies.
Companies such as Verizon Inc (VZ) and China Mobile (CHL) offer steady earnings without the steep valuations of consumer staples companies such as Procter & Gamble Co (PG), said Rupal Bhansali, Ariel’s chief investment officer of international and global equities. In her view, given the ubiquity of smartphones, cellular service could be considered a household essential alongside P&G’s products such as detergent and paper towels.
“I’m telling you, telecom is the new staple,” Bhansali said this week at the Reuters Global Investment Outlook 2020 Summit in New York.
For Bhansali, certain healthcare companies, including GlaxoSmithKline PLC (GSK) and Gilead Sciences Inc (GILD), also present good investment opportunities. Healthcare stocks have been pressured by U.S. regulatory proposals regarding drug pricing, but companies that develop innovative drugs are capable of withstanding those challenges, she said.
Equity investors have not fully registered the risk of extended corporate leverage, Bhansali said. General Electric Co (GE), whose shares have fallen 60% over the past three years, is a “canary in the coal mine,” she said, and other companies are set to follow in its footsteps.
Several tech and internet companies have hidden liabilities, she said, such as obligations from restricted stock units issued to employees.
Netflix Inc (NFLX), a member of the FANG group of momentum stocks, has leverage risk, Bhansali said. The streaming company also faces a growing list of competitors, including Walt Disney Co (DIS), Apple Inc (AAPL) and AT&T Inc (T).
“Netflix has this balance sheet that is tottering because it has taken on so much debt, and this is a company that can’t even hold onto its subscribers in the U.S.,” she said.
Bhansali has not shunned all of Wall Street’s high-flying stocks. Among the holdings in her global portfolio is Microsoft Corp (MSFT). With its Azure platform, it has an edge in hybrid cloud computing over rivals such as Amazon.com Inc (AMZN), she said.
Microsoft’s xCloud video-game streaming device, which is in development, could be another growth engine for the company, Bhansali said.
“There’s a lot that is still left to go right in the Microsoft story that is not in the stock,” she said.
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