Based on her preference for companies with the potential to grow market share and that are trading at a discount, Fidelity Portfolio Manager Jennifer Fo Cardillo is zeroing in on companies in the energy services and building-products industries, where she sees stabilizing business trends that she believes signal opportunity.
“This is where I see fertile ground for investing in above-average businesses trading at attractive valuations, given that my time horizon is sufficiently long,” says Fo Cardillo, who co-manages Fidelity® Stock Selector Small Cap Fund (FDSCX).
In managing assets for the diversified small-cap core strategy, she emphasizes high-quality companies with an established and durable competitive moat that can compound and help the firm become a larger, potentially more-profitable business over time.
She focuses on investment themes that she believes are not fully appreciated, including firms that could benefit from supply-constrained markets and an improved industry structure.
This has led to her conviction in energy services stocks, a category that has faced significant headwinds in recent years, with declining rig counts pressuring fundamentals, but now appears to be stabilizing.
As an example, Fo Cardillo cites oil & gas equipment & services provider CES Energy Solutions (CESDF), a company that has delivered double-digit revenue and profitability growth of late despite challenging end markets. She directly attributes this to the firm’s market-share gain and the shift toward increased use of production chemicals to offset declines in well quality.
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“The company’s vertical integration, deep focus on drilling fluids and production chemicals, and best-in-class customer service are key factors behind its steady ascent,” she explains.
Moreover, she considers the stock attractively valued versus peers, as the market may be underestimating the company’s potential for accelerated earnings as industry conditions improve.
Turning to building products, Fo Cardillo notes that high interest rates have cast a shadow over residential new construction, leading to underperformance for several businesses.
“That said, I believe the market’s focus on short-term challenges is obscuring the long-term earnings-growth potential of companies such as Installed Building Products (IBP) and Simpson Manufacturing (SSD) when the industry recovers,” she says.
The former operates in the consolidated industry of insulation installation, where scale can be a powerful advantage. In addition, the firm’s ability to procure labor and materials at lower costs strengthens the value proposition for customers, according to Fo Cardillo.
Installed Building Products can purchase insulation 25% cheaper than independent operators, she explains, while maintaining a more consistent and reliable labor pool. “These efficiencies enhance customer satisfaction and pave the way for gains in market and wallet share,” she concludes.
For specific fund information, including full holdings, please click on the fund trading symbol above. Securities mentioned were fund holdings as of March 31, its most recent holdings disclosure.
Jennifer Fo Cardillo is a portfolio manager in the Equity division at Fidelity Investments.
In this role, Ms. Fo Cardillo manages Fidelity Advisor Small Cap Fund and Fidelity Advisor Series Small Cap Fund. Additionally, she co-manages the Fidelity and Fidelity Advisor Stock Selector Small Cap and Fidelity Series Small Cap Opportunities Funds.
Prior to assuming her current position in, she was the co-portfolio manager on the Fidelity Advisor Small Cap Fund and the Fidelity Advisor Series Small Cap Fund. Additionally, she covered small-cap technology stocks. Previously, she covered a variety of small- and mid-cap health care stocks on both the core research and small cap teams.
Prior to joining Fidelity in 2009, Ms. Fo Cardillo was an intern in the consumer group at Citigroup’s Investment Banking division. In this capacity, she was responsible for the coverage of consumer stocks. She has been in the financial industry since joining Fidelity in 2009.
Ms. Fo Cardillo earned her bachelor of science degree in finance and accounting from Boston College, where she graduated summa cum laude from the Carroll School of Management Honors Program. She is also a CFA® charterholder.